HD 

7816 


;-NRLF 


SB 


•BBHDI 

»ET  ON  1920  REVISION 


'S   GOMPENSATION 

llBURANCE  RATES 


BY 


NATIONAL    COUNCIL    ON 


EAST  4otH  ;•  STREET 
:  CITY 


REPORT  ON  1920  REVISION 


OF 


WORKMEN'S    COMPENSATION 
INSURANCE  RATES 


ISSUED  BY 

NATIONAL    COUNCIL    ON    WORKMEN'S    COMPENSATION    INSURANCE 

1 6  EAST  40TH  STREET 

NEW  YORK  CITY 


PRESS  OF 

THE  NEW  ERA  PRINTING  COMPANY 
LANCASTER.  PA. 


TABLE  OF  CONTENTS. 

CHAPTER  PAGE 

I.     GENERAL  CONSIDERATIONS 1 

II.     DEVELOPMENT  OF  KATE-MAKING  SINCE  1917  CONFER- 
ENCE   3 

III.  THE  MANUAL   8 

IV.  COMBINATION  OF  Loss  EXPERIENCE 10 

V.     SELECTION  OF  BASIC  PURE  PREMIUMS  18 

VI.    TRANSLATION  FROM  BASIC  PURE  PREMIUMS  TO  STATE 

PURE  PREMIUMS 26 

VII.     PROJECTION  TO  1920  LEVEL  29 

VIII.     MANUAL   RATES    34 

IX.    CONCLUSION  .  37, 


iii 


APPENDICES  TO  REPORT  ON  1920  REVISION  OF. WORK- 
MEN'S COMPENSATION  INSURANCE  RATES. 

APPENDIX  PAGE 

I.    Articles  of   Organization  of   the   National  Reference 

Committee  on  Schedule  Rating 40 

II.     Articles  of  Organization  of  the  National  Council  on 

Workmen's  Compensation  Insurance  44 

III.  Constitution  of  the  National  Council  on  Workmen's 

Compensation  Insurance   50 

IV.  Committees  of  the  National   Council  on  Workmen's 

Compensation  Insurance   58 

V.     Maryland  Compensation  Rate  Sheet  60 

VI.    Example  of  Report  on  Schedule  "  Z " 61 

VII.    Table  of  Average  Values  for  Converting  D.  &  P.  T.  D. 

Losses  62 

VIII.    Working  Sheet  for  Calculation  of  the  Illinois  Conver- 
sion Factor  for  "  All  Other  "  Losses,  Group  1 63 

IX.     Table  of  Conversion  Factors  Used  in  1920  Revision  ...  64 
X.     Aggregate  Experience  Used  in  1920  Revision 65 

a.  By  States    65 

b.  By  Schedules   66 

.XI.     Working  Sheet  Illustrating  the  Translation  from  Basic 

Pure  Premiums  to  State  Pure  Premiums 67 

"XII.    American  Accident  Table  68 

XIII.  Calculation  of  Projection  Factor  for  New  York 71 

XIV.  Merit  Rating    76 


IV 


INTRODUCTION. 

The  last  preceding  general  revision  of  compensation  insurance 
rates  was  completed  in  1917.  An  account  of  the  proceedings  has 
been  published  and  is  now  a  subject  of  historical  interest. 

The  present  revision  has  been  prosecuted  under  more  favorable 
conditions  and  brings  to  bear  nearly  three  times  as  broad  an  insur- 
ance exposure  as  was  available  in  1917.  In  addition  an  entirely 
new  and  more  scientific  technique  has  been  developed  for  the  trans- 
lation of  the  crude  statistical  data  into  actual  rates. 

It  is  not  to  be  maintained,  however,  that  the  results  are  final  and 
conclusive.  The  industrial  and  economic  conditions  which  reflect 
themselves  in  compensation  insurance  statistics  are  continually 
shifting,  so  that  the  experience  record  of  yesterday  is  contradicted 
by  the  changed  indicia  of  today.  In  the  attempt  to  solve  the  vari- 
ous problems  of  compensation  rate-making,  the  best  that  can  be 
done  is  to  attain  a  reasonably  close  approximation  to  accuracy;  to 
do  more  is  impossible. 


CHAPTER   I. 
GENERAL  CONSIDERATIONS. 

The  problem  of  establishing  rates  for  the  insurance  of  workmen's 
compensation  involves  many  diverse  considerations  and  it  is  neces- 
sary, before  attacking  it,  to  have  these  considerations  quite  clearly 
in  mind.  A  workmen's  compensation  insurance  rate  is  the  price  at 
which  an  insurance  carrier  guarantees  to  make  payments  to  injured 
workmen  in  accordance  with  the  terms  of  a  state  law.  This  price 
is,  of  course,  paid  by  the  employer.  The  interests  directly  con- 
cerned with  the  establishment  of  proper  rates  are  employees,  em- 
ployers, the  public  and  insurance  carriers.  That  rates  shall  be 
satisfactory  to  all  of  these  interests  requires  that  they  be  adequate 
but  not  excessive,  and  that  they  measure  as  accurately  as  possible 
the  relative  hazard  of  each  industry. 

Adequacy  of  Rates. 

Adequacy  of  rates  means  that  the  collection  of  premiums  by  in- 
surance carriers  must,  in  the  aggregate,  yield  a  sufficient  income  to 
enable  each  carrier  to  make  payments  of  compensation  in  accord- 
ance with  the  terms  of  the  law  and  to  meet  the  expenses  and  taxes 
incident  to  the  conduct  of  the  compensation  insurance  business. 
Adequacy  is  a  prime  consideration,  for  upon  it  depend  the  solvency 
of  the  insurance  carrier,  the  guarantee  to  employer  and  employee 
that  payments  of  compensation  will  be  made  when  due,  and  the 
carrying  out  of  the  purposes  of  the  compensation  act.  On  the  other 
hand,  rates  are  excessive  when  premiums  collected  yield,  in  the 
aggregate,  an  amount  larger  than  is  necessary  to  enable  carriers  to 
meet  their  obligations  and  to  make-  a  reasonable  profit.  To  the 
extent  that  they  are  excessive  they  represent  an  unjustifiable  levy 
on  employers  and,  through  them,  on  consumers  of  their  product. 

Rates  as  Measurements  of  Hazard. 

The  third  requirement,  that  rates  shall  measure  accurately  the 
relative  hazard  of  industry,  is  based  on  the  idea  that  each  industry 
should  bear  the  costs  to  which  its  conduct  gives  rise.  To  distribute 

I 


CONSIDEKATIONS. 


the  cost  of  compensation  on  any  other  basis  would  not  only  be  unjust 
to  the  employers  and  to  the  consumer,  who  ultimately  pays  the  cost 
of  carrying  on  industry;  it  would  also  violate  the  fundamental 
theory  of  workmen's  compensation,  that  each  industry  is  respon- 
sible for,  and  should  bear  the  costs  resulting  from  injuries  which 
it  occasions  to  employees.  This  reasoning  for  the  industry  is  ap- 
plicable to  the  individual  plant  as  well  and,  where  possible,  rates 
for  individual  plants  should  also  reflect  relative  hazard.  As  will 
be  explained  later,  determination  of  relative  hazard  is  impossible 
beyond  a  certain  point  and  involves,  in  all  cases,  intricate  and  diffi- 
cult processes. 

Function  of  the  Insurance  Carrier. 

With  these  considerations  in  mind  it  is  evident  that  the  insur- 
ance carrier  occupies  an  important  position  in  the  administration 
of  workmen's  compensation  laws.  In  the  collection  of  premiums 
and  in  the  disbursement  of  indemnity,  together  with  the  services 
incidental  thereto,  the  carrier  is  performing  a  public  function. 
This  function  is  performed  properly  only  when  the  interests  of  the 
public  are  consulted  and  when  justice  is  done  so  far  as  may  be  to 
each  of  the  various  interests  which  go  to  make  up  the  public. 

The  1920  Revision. 

The  1920  revision  of  rates  for  workmen's  compensation  insur- 
ance represents  a  careful  application  of  fundamental  rate-making 
principles  in  the  light  of  the  fullest  possible  statistical  information 
by  a  non-partisan  organization  working  in  close  touch  with  state 
officials.  It  was  undertaken  by  the  National  Council  on  Workmen's 
Compensation  Insurance  early  in  the  fall  of  1919  and  has  occupied 
approximately  a  year.  The  present  report  is  a  detailed  presenta- 
tion of  the  principles  and  methods  followed  in  the  revision  and  is 
an  attempt  to  place  before  the  public  the  basis  of  the  new  manual 
of  rates. 

Specifically,  the  1920  revision  is  notable  for  the  extent  to  which 
a  priori  theory  has  been  eliminated  from  its  proceedings.  It  was 
early  decided  that  available  statistics  of  insurance  experience 
should,  to  the  greatest  possible  extent,  be  made  the  basis  of  the  new 
rates.  This  end  has  been  accomplished  both  by  the  accumulation 
of  extensive  data  and  by  the  development  of  new  statistical  and 
actuarial  methods  for  their  interpretation. 


CHAPTER   II. 

DEVELOPMENT  OF  RATE-MAKING  SINCE  1917  CONFEKCNCB. 

Considerable  steps  forward  in  theory  and  in  practical  results  were 
made  in  the  1915  and  1917  revisions  of  workmen's  compensation 
rates.1  These  revisions  represented  the  first  attempts  to  bring 
together  the  various  competitive  and  localized  insurance  interests 
for  the  purpose  of  pooling  experience  and  of  establishing  more 
accurate  rates  for  the  use  of  all  types  of  carriers.  Cooperation  on 
a  national  scale  proved  of  such  distinct  advantage  that,  after  the 
1917  conference,  it  was  generally  conceded  that  such  cooperation 
should  be  placed  on  a  continuing  basis. 

The  National  Reference  Committees. 

The  Augmented  Standing  Committee  which  had  in  charge  the 
1917  revision  ceased  to  exist  with  the  completion  of  its  work. 
There  was  some  question  concerning  the  status  of  the  old  "  Stand- 
ing Committee"  although  this  Committee  continued  to  meet  after 
the  completion  of  the  revision.  After  considerable  discussion  by 
insurance  carriers  and  supervising  officials  it  was  decided  to  create 
a  national  advisory  body  representative  of  rate-making  organiza- 
tions. Accordingly  there  was  established,  under  articles  of  organi- 
zation adopted  August  9,  1917,2  the  National  Reference  Committee 
on  Workmen's  Compensation  Insurance  for  the  purpose  of  promot- 
ing: 

1.  Uniform  classification  of  industry  for  workmen's  compensa- 
tion insurance. 

2.  A  consistent  relationship  between  rates  for  individual  classifi- 
cations in  the  several  states. 

3.  Uniform  rules  and  procedure. 

1  See  ' '  Proceedings  of  the  Joint  Conference  on  Workmen 's  Compensation 
Bates,  1915 "  and  "Beport  of  the  Work  of  the  Augmented  Standing  Com- 
mittee on  Workmen's  Compensation  Insurance  Bates — 1917. "      The  1915 
report  was  issued  by  the  New  York  State  Insurance  Department,  that  for 
1917  by  the  National  Workmen's  Compensation  Service  Bureau. 

2  See  * '  Beport  of  the  Work  of  the  Augmented  Standing  Committee  on 
Workmen's  Compensation  Insurance  Bates — 1917,"  Appendix  XV. 

3 


4        DEVELOPMENT  OF  RATE-MAKING  SINCE  1917  CONFEEENCE. 

This  committee  consisted  of  the  representatives  of  six  insur- 
ance carriers,3  with  a  state  insurance  department  as  chairman, 
elected  by  the  rating  boards  subscribing  to  the  agreement.  Ex- 
penses were  met  by  these  boards  in  proportion  to  the  premium 
writings  of  their  members. 

The  National  Reference  Committee  was  wholly  advisory  in  char- 
acter. Proposed  changes  in  classifications,  rules,  and  rates  were 
submitted  to  it  and  its  conclusions  were  communicated  to  its  con- 
stituent boards  and  bureaus  for  final  action.  By  this  means  some 
degree  of  uniformity  was  attained.  Absolute  uniformity  would 
have  been  neither  possible  nor  desirable  for  each  state  presents 
certain  exceptional  conditions  demanding  specific  treatment. 

The  Standing  Committee  on  Schedule  Eating  which  had  been  co- 
ordinate with  the  Standing  Committee  already  mentioned  was  like- 
wise reorganized  and  became  the  National  Eeference  Committee 
on  Schedule  Rating  under  articles  of  organization  similar  to  those 
of  the  committee  on  workmen's  compensation  insurance.4 

The  National  Council. 

These  two  committees  continued  until  December,  1918,  when,  as 
a  result  of  conferences  of  insurance  carriers,  managers  of  rating 
boards  and  state  officials,  there  was  adopted  a  new  agreement  which 
brought  them  together  under  one  organization.  This  organization 
was  known  as  the  National  Council  on  Workmen's  Compensation 
Insurance  and  was  maintained  and  directed  by  the  rating  boards 
subscribing  to  the  agreement  on  which  it  was  founded.5  Its  general 
management  was  in  the  hands  of  a  Committee  of  Managers  of 
rating  boards  who  elected  other  committees.  Its  technical  work 
was  carried  out  by  a  new  National  Reference  Committee  similar 
to  the  preceding  one,  and  by  two  auxiliary  committees  advisory  to 
the  Reference  Committee ;  The  Actuarial  Committee,  and  the  Engi- 
neering Committee.  This  new  organization  was  formally  estab- 
lished in  December,  1918  and,  like  its  predecessors,  was  purely 
advisory  in  character.  That  its  purposes  were  of  somewhat  wider 
scope,  however,  is  evidenced  by  a  provision  in  the  articles  of  organi- 
zation that  the  council  should  undertake  general  rate  revisions 

s  Three  stock  companies,  two  mutuals,  one  state  fund. 

*  These  articles  of  organization  are  contained  in  Appendix  I. 

8  Thia  agreement  is  given  in  full  in  Appendix  II. 


DEVELOPMENT  OF  KATE-MAKING  SINCE  1917  CONFERENCE.         5 

whenever  necessary,  having  power  to  enlarge  its  committees  for 
this  purpose. 

Early  in  1918  the  advisability  of  a  general  rate  revision  was 
discussed  but  it  was  decided  not  to  undertake  the  work  during  that 
year.  The  Pennsylvania  rating  bureau  undertook  a  revision  of 
rates  for  that  state  in  October,  1918,  in  which  were  applied  several 
new  principles,  most  of  which  had  been  discussed  by  the  national 
organization.6  Pennsylvania  conducted  another  revision  in  1919 
as  did  also  New  Jersey  and  Massachusetts.  During  this  time  the 
question  of  a  general  rate  revision  continued  to  be  discussed  and 
considerable  differences  of  opinion  were  developed  as  to  the  extent 
to  which  rates  for  individual  states  should  be  predicated  on  national 
experience.  Out  of  this  discussion  grew  the  generally  accepted 
opinion  that  there  should  be  constituted  with  the  least  possible 
delay  a  national,  non-partisan,  advisory,  rate-making  body  which 
should  be  fully  equipped  to  perform  all  of  the  functions  of  rate- 
making. 

Reorganization  of  the  National  Council. 

Conferences  were  accordingly  held  and  as  a  result  the  National 
Council  on  Workmen's  Compensation  Insurance  was  entirely  re- 
organized and  its  functions,  staff  and  equipment  considerably  en- 
larged. A  constitution7  was  adopted  on  September  5,  1919,  the 
effective  date  of  the  new  organization.  The  objects  of  the  Council 
are  best  stated  by  quoting  Article  II  of  the  Constitution. 

The  objects  of  the  National  Council  on  Workmen's  Compensation 
Insurance  hereinafter  called  "The  Council"  shall  be:  to  cooperate 
with  rating  organizations  and  public  officials  in  all  states  in  the 
determination  of  equitable  rates  for  workmen's  compensation  insur- 
ance, and  to  promote  a  true  public  understanding  concerning  the 
establishment  of  such  rates.  To  this  end  the  Council  shall : 

1.  Collect  and  compile  experience  for  rate-making  purposes. 

2.  Establish  classifications  for  rate-making,  and  rules  and  procedure 

governing  the  application  of  the  same. 

3.  Establish  basic  pure  premiums  and  formulate  fundamental  gen- 

eral principles  applicable  to  all  states  for  translating  such 
pure  premiums  into  rates. 

e  For  an  account  of  the  methods  employed  in  the  Pennsylvania  revision, 
1918,  see  paper  by  E.  H.  Downey  and  G.  C.  Kelly,  "The  Kevision  of  Penn- 
sylvania Compensation  Insurance,  1918" — Proceedings  Casualty  Actuarial 
and  Statistical  Society  of  America,  Vol.  V,  Part  II. 

7  See  Appendix  III. 


6        DEVELOPMENT  OF  HATE-MAKING  SINCE  1917  CONPBKENCE. 

4.  Establish  rating  plans  for  the  purpose  of  modifying  manual 

rates  on  individual  risks.  _ 

5.  Assist  its  members  in  deciding  questions  concerning  manual 

rates,  rules,  classifications  and  rating  plans. 

6.  Encourge  and  assist  in  the  organization  of  non-partisan  bureaui 

for  rate  regulation  for  states  where  the  laws  permit  or  re- 
quire the  organization  of  such  bureaus. 

The  council  is  made  up  of  ten  subscribing  rating  bureaus,  each 
having  jurisdiction  over  compensation  rates  in  its  own  state.  The 
National  Association  of  Mutual  Casualty  Companies  and  the 
National  Workmen's  Compensation  Service  Bureau  are  also  mem- 
bers. The  conduct  of  its  business  affairs  is  in  the  hands  of  a 
Governing  Committee,  while  technical  matters  are  handled  by 
special  committees  elected  by  the  Committee  of  Managers,  com- 
posed of  the  managers  of  all  the  subscribing  bureaus.  These  tech- 
nical committees  are  the  General  Eating  Committee,  the  Actuarial 
Committee,  the  Engineering  Committee  and  the  Coal  Mine  Com- 
mittee. Each  is  a  " balanced  committee"  made  up  of  an  equal 
number  of  participating  and  non-participating  carriers.  A  state 
insurance  department  having  supervision  of  workmen's  compensa- 
tion insurance  rates  is  invited  to  preside  at  the  meetings  of  each 
committee. 

The  General  Eating  Committee,  on  which  the  companies  are 
usually  represented  by  compensation  underwriters,  prepares  and 
amends  the  manual  of  classifications,  rules  and  rates  on  the  basis 
of  analyzed  experience,  and  has  final  authority  over  the  fundamental 
principles  of  the  experience  and  schedule  rating  plans.  The  Actu- 
arial Committee,  on  which  the  representatives  are  casualty  insur- 
ance actuaries,  acts  for  the  General  Eating  Committee  in  an  ad- 
visory capacity  on  actuarial  and  statistical  problems  in  the  general 
rating  program  or  in  the  more  specific  problems  of  the  experience 
rating  plan.  The  Engineering  Committee,  made  up  of  representa- 
tives of  the  carriers'  engineering  staffs,  advises  the  General  Eating 
Committee  on  engineering  problems,  particularly  in  connection  with 
schedule  rating,  and  has  authority  to  make  detailed  amendments 
to  the  schedule  rating  plan.  The  Coal  Mine  Committee,  with  a 
membership  limited  to  carriers  writing  coal  mine  insurance,  deal* 
with  all  questions  affecting  the  rating  of  coal  mines.8 

«  The  membership  of  the  committees  of  the  National  Council  is  given  im 
Appendix  IV. 


DEVELOPMENT  OP  KATE-MAKING  SINCE  1917  CONFERENCE.         7 

The  work  of  conducting  the  Council  is  in  the  hands  of  a  Gen- 
eral Manager.  A  staff  of  assistants  is  being  developed  to  handle 
all  phases  of  rate-making.  The  urgency  of  the  1920  revision  was 
such  that  there  was  no  opportunity  for  the  development  of  a  staff 
to  perform  the  necessary  mechanical  and  clerical  work.  Fortu- 
nately, arrangements  could  be  made  with  the  National  Workmen's 
Compensation  Service  Bureau  for  the  use  of  its  committee  rooms, 
mechanical  equipment,  and  clerical  staff  under  the  direction  of  the 
officers  of  the  Council.  Without  this  assistance  it  would  have  been 
impossible  without  undue  delay  to  have  carried  through  the 
revision. 


CHAPTEK   III. 

THE  MANUAL. 

While  the  manual  of  compensation  insurance  rates  iteelf  repre- 
sents the  completed  work  of  the  Council  in  the  1920  revision  it  is 
well  to  describe  its  form  and  purposes  as  an  introduction  to  the 
processes  of  rate-making. 

The  manual  is  made  up  of  three  sections  containing: 

1.  Classifications  of  industry  to  which  compensation  rates  apply. 

2.  Rates  applicable  to  each  classification. 

3.  Eules  governing  the  application  of  rates. 

Classifications. 

The  setting  up  of  classifications  and  their  definition  is  of  funda- 
mental importance,  for  on  these  depend  the  charging  of  the  proper 
rate  for  employers'  operations  and  the  proper  recording  of  payrolls 
and  losses  for  the  development  of  "  experience."  Misclassification 
of  a  risk,  whether  accidental  or  intentional,  works  injustice  to  the 
employer  or  the  insurance  company  if  it  involves  an  incorrect 
charge,  and  causes  inaccuracy  in  the  statistics  of  payroll  and  losses 
on  which  future  rates  will  be  based.  It  is  further  important  that 
each  classification  represent  operations  of  sufficient  extent  to  fur- 
nish an  adequate  statistical  basis  for  rate-making.  Classifications 
may  be  multiplied  to  so  great  a  length  that  many  will  represent 
operations  so  limited  that  classification  loss  records  will  be  prac- 
tically useless  for  rate-making  purposes. 

It  was  generally  agreed  that  the  manual  as  it  stood  before  the 
1920  revision  contained  too  many  classifications,  a  large  number 
representing  insignificant  operations,  or  only  minor  differences  of 
hazard.1  In  the  new  manual  the  number  of  classifications  has  been 
cut  down  from  1319  to  953,  the  net  result  of  the  elimination  of  466 
old,  and  the  erection  of  100  new  classifications.  The  erection,  aboli- 
tion, or  consolidation  of  classifications  is  necessarily  based  on  an 
intimate  knowledge  of  engineering  and  of  underwriting  processes. 

i  For  a  discussion  of  this  point  see  ' l  The  Uses  and  Abuses  of  Schedule  Z ' ' 
by  E.  H.  Downey,  published  by  the  National  Council. 

8 


THE   MANUAL.  9 

Each  classification  should  be  homogeneous  and  should  not  lend 
itself  to  competitive  abuse. 

The  classifications  contained  in  the  manual  are  in  most  cases 
applicable  to  all  states  without  modification.  Uniformity  on  a 
national  scale  is  desirable  but  many  states  have  certain  peculiari- 
ties which  must  be  recognized  with  exceptional  classifications. 
These  are  separately  listed  in  the  manual  for  each  state. 

Rates. 

Each  classification  has  assigned  to  it  a  code  number  for  reference 
purposes.  The  manual  for  each  state  contains  a  series  of  rate 
sheets2  on  which  are  given  the  rates  per  $100  of  payroll  exposed 
and  the  minimum  premiums  applicable  to  the  code  numbers.8 

Rules. 

The  third  essential  of  the  manual,  a  body  of  rules  governing  the 
application  of  rates,  is  uniform  for  all  states  with  some  minor 
exceptions.  These  rules  have  been  gradually  developed  as  under- 
writing experience  has  indicated  the  need  of  interpretation  and 
regulation. 

The  manual  is  the  embodiment  of  two  purposes  of  the  Council; 
the  maintainance  of  national  uniformity  wherever  possible,  as  illu- 
strated by  the  classifications  and  rules;  and  adaptation  to  the  pecu- 
liar circumstances  of  each  jurisdiction,  as  evidenced  by  exceptional 
rules  and  classifications  and  by  the  entire  system  of  rates. 

2  A  sample  set  of  rate  sheets  is  reproduced  in  Appendix  V. 

s  ' '  A  minimum  premium  is  an  expression  of  the  lowest  premium  amount 
for  which  a  single  risk  can  be  written  and  carried  for  any  period  not  exceed- 
ing one  year."  (Extract  from  rules.) 


CHAPTER  IV. 

COMBINATION  OF  Loss  EXPERIENCE. 

Insurance  carriers  operate  upon  the  fundamental  theory  that  the 
past  is  an  index  to  the  future.  Specifically,  losses  and  expenses 
under  workmen's  compensation  insurance  contracts  are  a  guide  to 
probable  future  losses  and  expenses  and  hence  are  a  basis  for  rates. 
For  this  reason  careful  records  of  the  experience  of  carriers  have 
been  kept.  The  present  chapter  explains  these  records  and  their 
combination  on  a  national  scale. 

Criteria  of  Experience. 

In  the  use  of  insurance  experience  certain  criteria  of  its  value 
should  be  kept  in  mind.  In  the  first  place  the  data  must  be  accu- 
rate. This  requirement  may  seem  so  obvious  as  not  to  need  state- 
ment but  it  is  so  fundamental  and  so  often  neglected  that  it  should 
be  emphasized.  Misclassifying  the  payroll  or  losses  of  a  large  risk 
may  materially  affect  the  experience  record  for  a  classification.  In- 
sistence upon  careful  checking  of  data  is  essential  if  the  experience 
recorded  is  to  present  a  true  statement  of  past  events.  To  the 
extent  that  the  statement  is  untrue,  action  predicated  upon  it  will 
be  inaccurate. 

Secondly,  data,  to  be  useful,  must  be  sufficiently  extensive  to  be 
indicative  of  underlying  conditions  rather  than  a  mere  record  of 
chance  events.  In  workmen's  compensation  this  quality  in  the  ex- 
perience may  be  viewed  from  several  different  angles;  period  of 
time  covered,  payroll  of  risks  which  produced  the  experience, 
amount  of  losses,  nature  of  losses,  amount  of  premiums,  hazard  of 
the  classification.  Subject  to  qualification,  it  may  be  said  that  the 
greater  the  amount  of  experience  compiled  for  a  given  industry  in 
terms  of  payroll,  of  premiums  or  of  losses,  the  greater  the  value 
of  the  experience  as  an  indication  of  the  loss-producing  character- 
istics of  that  industry  and  hence  of  the  rate  which  should  be 
charged. 

Lastly,  it  must  be  remembered  that,  although  accurate  experience 
may  have  been  compiled  for  extensive  operations,  it  will  not  serve 

10 


COMBINATION    OP    LOSS    EXPERIENCE.  11 

as  a  basis  for  future  charges  unless  there  is  some  correspondence 
between  the  conditions  of  the  future  and  of  the  past  period  during 
which  the  experience  was  produced.  Ideally,  the  conditions  should 
be  exactly  the  same;  actually,  an  adjustment  may  be  necessary  to 
adapt  experience  indications  to  new  conditions. 

Schedule  Z. 

In  workmen's  compensation  insurance  the  basic  report  of  experi- 
ence by  carriers  is  known  as  Schedule  Z.  This  report  is  submitted 
in  two  general  forms ;  one,  a  summary  of  experience  for  each  classi- 
fication and  the  other,  a  report  to  be  made  for  each  individual  case 
of  death  or  serious  disability.1  Two  complete  reports  are  filed  for 
each  policy  year,  one  during  the  year  following  the  termination  of 
the  experience  period  and  another  one  year  later  when  the  experi- 
ence is  more  fully  matured.  The  entire  subsequent  structure  of 
experience  is  based  upon  these  reports  and  the  greatest  care  is  taken 
to  insure  their  accuracy.  To  this  end  they  are  audited  by  statis- 
ticians and  doubtful  figures  are  investigated.  Official  Schedule  Z 
reports  are  required  by  the  supervising  authorities  of  eight  states2 
and  reports  are  filed  with  the  National  Council  for  other  states  in 
which  competitive  insurance  carriers  operate. 

The  compiling  of  up-to-date  and  accurate  experience  in  work- 
men's compensation  insurance  is  peculiarly  difficult  because  of  the 
policy-year  method  of  accounting  and  because  of  the  continuing 
and  often  indeterminate  nature  of  losses.  The  policy-year  is  the 
period  covered  by  all  policies  issued  during  a  given  year  and  extends 
over  two  calendar  years,  from  the  time  the  first  policy  is  written 
in  a  given  year  to  the  time  of  expiration  of  the  last  policy  written 
during  that  year.  This  basis  for  accounting  is  necessary  since 
premiums  and  payrolls,  to  which  losses  and  rates  are  related,  are 
in  terms  of  a  full  policy-year  and  to  use  a  calendar-year  basis  would 
be  highly  impractical. 

Even  after  the  expiration  of  a  policy  year  accurate  statements  of 
loss  experience  are  difficult  to  make.  Payments  under  the  law  may 
have  to  be  made  for  the  lifetime  of  the  beneficiary  and  in  many 
cases  payments  depend  upon  continuance  of  disability  for  a  period 
which  cannot  be  definitely  ascertained  at  the  time  of  making  the 

i  Typical  examples  of  these  reports  are  given  in  Appendix  VI. 
*  California,  Delaware,  Maine,  Massachusetts,  New  Jersey,  New  York, 
Pennsylvania,  Wisconsin. 


12  COMBINATION    OF    LOSS    EXPERIENCE. 

report.  Statistics  of  losses  for  a  considerable  period  after  a  policy 
is  written  cover  losses  already  liquidated  as  well  as  "outstanding" 
losses,  those  incurred  but  not  yet  paid.  These  two  parts  com- 
bined make  up  the  total  losses  incurred  under  the  policy  for  which 
provision  must  be  made  in  rates. 

Further,  conditions  affecting  compensation  losses  change  rapidly, 
so  rapidly  that  experience  loses  its  value  in  a  relatively  short  time. 
When  one  also  considers  that  it  is  only  recently  that  experience  of 
large  volume  has  been  properly  collected  it  is  evident  that  there 
must  be  some  compromise  between  the  use  of  recent  experience 
involving  estimates  of  outstanding  losses  and  the  use  of  fully  ma- 
tured experience  developed  under  earlier  conditions.  When  the  ac- 
cumulation of  data  for  the  1920  revision  was  begun  in  November, 
1919,  the  latest  experience  available  was  for  policy  year  1917, 
covering  the  calendar  period  1917-1918.  Second  reports  on 
Schedule  Z  forms  were  likewise  available  for  the  policy-year  1916, 
except  in  a  few  states  the  compensation  laws  of  which  were  not  in 
effect  in  1916.  Some  earlier  experience  could  have  been  secured 
but  it  was  considered  too  old  to  be  of  value.  It  was  accordingly 
decided  to  make  use  of  policy  years  1916  and  1917  and  figures  were 
collected  from  twenty-seven  states  representing  total  payrolls  of  ap- 
proximately $12,000,000,000  and  total  losses  of  approximately 
$79,000,000. 

Combination  of  Experience. 

Had  all  of  this  experience  been  produced  under  identical  laws 
and  under  exactly  similar  conditions  for  each  industry  it  would 
have  been  possible  to  add  losses  and  payrolls  for  each  classification 
and  work  from  the  results.  But  as  this  volume  of  experience  was 
originally  collected  it  was  representative  of  operations  under  widely 
varying  laws,  varying  distributions  of  industry  and  diverse  under- 
lying conditions.  In  order  to  bring  together  sufficient  data  to  be 
indicative  of  probable  losses  it  was  necessary  to  combine  the  figures 
from  all  states  on  a  single  basis.3  The  state  of  New  York  con- 
tributed the  largest  amount  of  experience,  its  Schedule  Z  data  was 
carefully  collected  and  audited  by  state  officials,  and  its  schedule  of 
benefits  was  representative  and  called  for  higher  payments  than 

a  As  will  be  seen,  it  was  also  necessary  to  further  combine  the  data  for 
numerous  individual  classifications  in  order  to  secure  adequate  exposure. 


COMBINATION    OP    LOSS    EXPEEIENCB.  13 

that  of  any  other  state.  With  these  considerations  in  mind  the  ex- 
perience of  that  state  for  policy-year  1917  was  selected  as  a  stand- 
ard to  which  the  losses  of  other  states  should  be  converted. 

Conversion  Factors. 

In  previous  revisions  the  work  of  conversion  to  a  common  level 
had  been  effected  by  the  use  of  flat  theoretical  differentials.  The 
cost  of  compensating  one  hundred-  thousand  accidents  distributed  by 
results  had  been  calculated,  using  the  Standard  Accident  Table  and 
the  terms  of  each  state  law  as  a  basis.  The  cost  for  the  basic  state 
had  then  been  compared  with  the  cost  for  each  additional  state4  and 
the  ratio  became  a  factor  to  be  applied  to  the  losses  of  the  additional 
state  to  convert  them  to  the  level  of  the  basic  state.  This  factor 
was  applied  alike  to  all  types  of  losses  and  all  classifications  within 
a  given  state.  It  has  long  been  realized  that  this  method  is  un- 
satisfactory as  it  does  not  rest  on  statistics  of  actual  experience  and 
gives  no  recognition  to  certain  variants  between  states.  It  is  only 
recently  that  such  statistics  and  methods  adapted  to  their  use  have 
been  developed. 

An  innovation  was  applied  in  the  1920  revision  which  had  been 
strongly  urged  in  1917  and  which  had  been  tested  out  in  Pennsyl- 
vania and  New  Jersey,  viz.  the  partial  experience  conversion  factor. 
A  conversion  factor  is  a  factor  which,  when  applied  to  the  losses 
of  an  additional  state,  will  produce  theoretically  the  losses  which 
the  same  accidents  would  have  occasioned  under  the  law  and  condi- 
tions of  the  basic  state.  For  example,  if  losses  in  a  given  state 
amounted  to  $50,000  and  the  factor  for  converting  to  the  New  York 
1917  basis  was  1.50  thp  probable  New  York  losses  would  be 
$75,000.  One  of  the  first  problems  of  the  actuarial  committee  was 
the  development  of  a  method  of  thus  comparing  the  loss  experience 
of  New  York  and  other  states  in  such  a  way  as  to  discover  factors 
of  this  sort  which  would  represent  the  difference  in  actual  experi- 
ence between  the  states.  The  method  used  to  this  end  is  described 
below. 

A  secondary,  but  vital,  question  arose  concerning  the  loss  di- 
visions of  the  experience  to  which  the  conversion  factors  should  be 
applied.  As  has  been  explained  such  factors  had  in  the  past  been 

*  The  term  ' ;  basic  state ' J  is  used  to  refer  to  the  state  which  has  been 
selected  as  a  standard,  and  the  term  "  additional  state "  to  refer  to  states, 
the  experience  of  which  is  to  be  converted  to  this  standard. 


14  COMBINATION    OP    LOSS    EXPERIENCE. 

applied  to  total  losses  for  each  state.  But  the  variation  between 
state  laws  is  not  the  same  for  all  classes  of  benefits.  For  example, 
the  total  benefits  payable  for  an  entire  group  of  accidents  under  the 
New  York  law  might  be  twice  as  great  as  under  the  law  of  another 
state.  Analysis  of  benefits  by  type  however  might  show  that  death 
and  permanent  disability  benefits  in  New  York  were  thrfce  times  as 
liberal,  benefits  for  other  types  of  disability  one  and  one-half  times 
as  liberal  and  medical  provisions  the  same  in  both  compensation 
acts.  Conversion  on  the  basis  of  a  single  factor  would  accordingly 
distort  the  experiences  and  it  was  therefore  determined  to  develop 
separate  factors  by  type  of  benefit.  Another  variation  in  the  rela- 
tionship between  any  two  states  is  that  dependent  upon  the  class  of 
industry  considered.  Referring  to  the  example  just  cited,  although 
benefits  for  industry  as  a  whole  in  New  York  might  be  twice  as 
great  as  in  another  state,  this  relationship  might  not  hold  for  par- 
ticular industries  or  groups  of  industries. 

Hence,  to  allow  for  these  variations  it  was  deemed  necessary  to 
convert  separately  the  losses  for  different  classes  of  benefits  and 
also  for  different  groups  of  industry.  For  this  purpose  losses  were 
first  divided  into  the  following  categories : 

1.  "D.  and  P.  T.  D."  (death  and  permanent  total  disability). 

2.  "A.  0.  Indemnity"  (all  other  indemnity). 

3.  "Medical." 

The  first  of  these  classes  included  indemnity  losses  in  fatal  and 
permanent  total  disability  cases;  the  second,  indemnity  losses  in 
permanent  partial  disability  and  temporary  disability  cases;  the 
third,  all  medical  losses  irrespective  of  the  nature  of  the  injury. 
For  the  purpose  of  converting  "  all  other  "  and  "  medical "  losses  a 
further  division  into  three  groups  of  industries  was  made : 

1.  Classifications  involving  essentially  contracting  and  building 
operations,  including  excavation  and  other  heavy  out-door  work. 

2.  Classifications   characterized   by   a   marked   dismemberment 
hazard. 

3.  All  classifications  not  included  in  groups  1  and  2. 

Each  of  these  divisions  of  losses  presented  peculiar  characteristics 
which  marked  it  off  from  other  divisions.  It  would  have  been 
possible  to  have  divided  losses  to  an  even  greater  extent  but  for 
practical  purpose  the  divisions  used  were  regarded  as  sufficient. 


COMBINATION    OF    LOSS    EXPERIENCE.  15 

1920  Conversion  Factors. 

Death  and  permanent  total  disability  losses  are  so  infrequent  and 
the  amount  of  indemnity  payable  so  variable  that  it  was  decided  to 
use  an  average  value  method  of  conversion.  An  amount  was 
selected  for  each  schedule  to  represent  the  average  cost  of  com- 
pensating D.  and  P.  T.  D.  cases  in  that  schedule  under  New  York 
1917  conditions.  This  average  amount  was  multiplied  by  the  num- 
ber of  D.  and  P.  T.  D.  cases  for  each  classification  in  each  state. 
The  results  represented  the  additional  state  losses  reduced  to  the 
New  York  1917  level.  For  example,  sixteen  D.  and  P.  T.  D.  cases 
occurred  under  the  classification  "  Tanning  "  in  Massachusetts  dur- 
ing the  policy  years  1916-1917.  The  average  value  assigned  to  the 
leather  schedule,  under  which  "Tanning"  is  found,  was  $3500. 
The  converted  losses  for  Massachusetts  for  this  classification  were, 
therefore,  $56,000. 

"All  Other"  and  "medical"  losses  have  been  converted  to  the 
basic  level  by  a  formula  method  which  was  developed  by  Mr.  W.  W. 
Greene.6  In  brief  this  method  consists  in  first  securing  an  approxi- 
mate conversion  factor  and  in  correcting  this  first  approximation 
by  applying  the  Greene  formula.  The  corrected  conversion  factor 
is  applied  to  the  losses  of  the  additional  state  and  the  result  repre- 
sents probable  losses  on  the  New  York  1917  level.  Separate  factors 
were  worked  out  in  each  state7  for  "all  other"  losses  and  for 
"  medical "  losses  in  each  of  the  three  groups  of  industry.8 

Greene's  Method. 

The  first  approximation  for  each  division  of  experience  is  ob- 
tained by  securing  the  ratio  of  the  average  loss  per  $100  of  payroll 
in  an  additional  state  and  the  average  for  the  New  York  1917  ex- 
perience. This  ratio  is  then  used  in  the  following  formula  to 
secure  a  corrected  conversion  factor : 

Total  Losses  for  Basic  State 
Total  Losses  for  Additional  State 
1+0  ~ 

5  For  a  full  list  of  these  average  values  see  Appendix  VII. 

6  For  an  explanation  of  the  development  of  Greene's  formula  see  "TJpoa 
Combining    Compensation    Experience    from    Several    States"    by    W.    W. 
Greene.      Proceedings  of  tlie  Casualty  Actuarial  and  Statistical  Society  of 
America,  Vol.  VI,  Part  I. 

7  With  certain  minor  exceptions. 

s  For  the  purposes  of  the  calculation  of  each  conversion  factor  twenty 
representative  classifications  of  industry  were  selected. 


16  COMBINATION    OF    LOSS    EXPERIENCE. 

where  E  =  Corrected  conversion  factor, 

E  =  First  approximation  to  conversion  factor, 

Expected  Losses  for  Basic  State  (Using  R) 

Actual  Losses  for  Basic  State 

As  an  example  of  the  process  employed,  the  calculation  of  a  con- 
version factor  for  "all  other  losses"  in  Group  I  for  tUe  state  of 
Illinois  may  be  taken.  The  total  payroll  for  twenty  selected  classi- 
fications in  New  York  (1917)  was  $52,825,000.  For  the  same 
classifications,  total  payroll  for  Illinois  for  1916-1917  was  $44,- 
504,600.  Total  "all  other"  losses  for  the  same  period  amounted, 
in  New  York,  to  $721,384,  or  $1.366  per  $100  of  payroll  and,  in 
lUinois,  to  $330,563,  or  $0.743  per  $100  of  payroll.  Dividing  1.366 
by  .743  produces  a  first  approximation  of  1.838.  Multiplying  the 
Illinois  losses  in  each  of  the  twenty  classifications  by  this  figure  con- 
verts them  to  the  New  York  1917  basis.  It  is  then  possible,  by 
adding  the  converted  losses  to  the  actual  New  York  1917  losses  and 
comparing  the  total  with  the  combined  payrolls  of  the  two  states, 
to  determine  losses  per  $100  of  payroll  on  the  New  York  1917  basis 
as  indicated  by  combined  New  York  and  Illinois  experience.  If 
the  Illinois  losses  have  been  properly  converted  this  should  give 
more  accurate  results  than  could  have  been  secured  by  using  the 
figures  for  either  state  by  themselves  since  the  broader  the  ex- 
posure, the  more  reliable  the  experience  as  an  indication  of  prob- 
able losses. 

As  a  test  of  the  accuracy  of  this  combination  the  loss  indication 
$>ear  SI  00  of  payroll  for  each  classification  may  be  applied  to  the 
.""New  York  1917  payroll  for  that  classification.  While  the  results 
,of  this  application  cannot  be  expected  to  reproduce  the  actual  New 
"3To.rk  losses  for  individual  classifications  because  the  exposure  will 
"be,  in  most  cases,  too  small,  the  total  of  New  York  1917  losses  as 
indicated  by  the  combined  experience  should  closely  reproduce  the 
actual  losses  because  the  total  New  York  exposure  is  sufficiently 
broad  to  give  reliable  results.  Such  a  test  showed  that  the  total 
loss  indications  of  the  combined  experience  was  $725,869,  six  tenths 
pf  one  per  cent,  more  than  the  actual  losses  of  $721,384. 

But,  as  has  been  indicated,  this  result  was  obtained  by  the  use 
of  an  approximate  conversion  factor  which  was  to  be  corrected  by 
the  application  of  Greene's  formula.  The  substitution  of  figures 


COMBINATION    OF    LOSS    EXPERIENCE.  17 

for  the  symbols  may  now  be  made  : 
£  =  1.838, 


1    .    n_  >         _ 

~  $721,384  -1'006' 


D=f.006. 
Substituting  in  the  formula 


^(Corrected  conversion  factor)  =  -  T~T^T;  -  •  -  =  1.814. 

1.006 

The  approximate  conversion  factor  of  1.838  has  now  been  corrected 
to  1.814,  a  factor  from  which  more  accurate  results  may  be  ex- 
pected. A  final  test,  using  1.814  as  the  conversion  factor,  shows 
that  New  York  1917  losses  as  indicated  by  the  combined  experience 
amount  to  721,869  or  100.07  per  cent,  of  the  actual  New  York 
losses.  An  error  as  small  as  this  may  properly  be  disregarded.9 

Similar  calculations  and  tests  were  made  by  types  of  losses  and 
by  groups  for  each  state.10  With  a  complete  set  of  factors  repre- 
senting the  difference  between  the  level  of  losses  for  a  given  state 
and  the  New  York  1917  level  the  process  of  converting  to  the  latter 
level  was  simply  one  of  multiplying  losses  for  each  type  of  benefit 
for  each  classification  by  the  appropriate  conversion  factor.  The 
sum  of  the  results  in  each  case  constituted  the  total  national  loss 
experience.  With  this  total  loss  experience  and  with  total  payrolls 
the  indicated  loss  per  $100  of  payroll  could  be  calculated  for  indi- 
vidual classifications  and  states  or  for  any  groups  of  classifications 
or  of  states.11 

»  The  complete  working  sheet  used  for  the  calculation  and  test  of  the 
factor  considered  in  this  example  is  given  in  Appendix  VIII. 

10  A  complete  table  of  conversion  factors  is  given  in  Appendix  IX.  Cer- 
tain exceptions  in  the  division  of  experience  are  there  noted. 

"In  Appendix  X  is  presented  a  statement  of  the  entire  experience  ool- 
lected.  The  columns  headed  "P.  P.  "  contain  the  amount  of  converted  losses 
per  $100  of  payroll. 


CHAPTER  V 
SELECTION  OF  BASIC  PUBE  PREMIUMS. 

The  next  step  in  the  rate-making  process  is  the  selection  of  basic 
pure  premiums,  using  as  a  guide  the  combined  experience.  Basic 
pure  premiums  are  quantities  expressing  the  probable  losses  under 
the  conditions  of  the  basic  state,  in  this  case  New  York  for  the 
policy  year  1917.  These  basic  pure  premiums  do  not  indicate  the 
amounts  which  must  be  collected  in  order  to  pay  losses  in  the 
future.  They  furnish  simply  a  standard  of  reference  (analogous  to 
index  numbers)  on  the  basis  of  which  rates  can  be  constructed  and 
serve  to  indicate  the  relative  hazards  of  the  various  classifications 
of  industry. 

Presentation  of  Experience. 

As  the  converted  experience  was  to  be  used  by  the  General  Rating 
Committee  in  the  selection  of  basic  pure  premiums  it  was  essential 
that  it  be  presented  to  them  in  such  form  as  to  furnish  all  of  the 
information  required  and  to  simplify  interpretation.  It  was  desired 
to  have  readily  available  figures  for  individual  classifications  by 
states,  by  groups  of  states,  and  for  the  country  as  a  whole.  Com- 
binations of  related  classifications  were  also  presented.  A  sample 
experience  sheet  for  classification  3632  is  given  on  page  19.  It 
will  be  seen  that  this  sheet  presents  the  payroll  of  the  classification, 
the  number  of  cases  (except  medical),  the  total  amount  of  losses, 
and  the  pure  premiums  or  losses  per  $100  of  payroll.1  Space  is 
provided  for  notations  by  members  of  the  committee.  The  classi- 
fications of  industry  included  in  the  manual  have  been  combined 
into  899  groups  and  the  groups  into  37  schedules.2  On  sheets 

1  This  is  the  indicated  pure  premium,  the  amount  of  converted  losses  per 
$100  of  payroll.     It  is  to  be  distinguished  from  the  selected  pure  premium, 
the  amount  selected  by  the  rating  committee  as  representative  of  the  hazard 
of  each  classification. 

2  Classifications  which  are  homogeneous  from  an  insurance  point  of  view 
have  been  selected  to  make  up  each  group  and  schedule.     Keference  to 
Appendix  VII    (average  values)   will  indicate  the  general  nature  of  the 
schedules. 

18 


SELECTION    OF   BASIC   PURE  PREMIUMS. 


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20  SELECTION    OP   BASIC    PURE   PREMIUMS. 

similar  to  that  given  on  page  19  converted  experience  was  presented 
for  each  group  and  for  each  schedule. 

Methods  of  Selection. 

Owing  to  variations  in  the  volume  and  dependability  of  the  ex- 
perience presented  the  same  line  of  reasoning  could  not  ty  followed 
in  the  selection  of  basic  pure  premiums  for  all  classifications.  Ex- 
perience indications  were  necessarily  supplemented  by  expert  judg- 
ment. The  various  methods  used  in  selection  have  already  been 
described  by  the  Secretary  of  the  Council  in  a  paper  read  before 
the  Casualty  Actuarial  and  Statistical  Society  of  America.  The 
following  examples  are  taken  from  this  paper.8 

1.  The  simplest  case  is  where  the  experience  is  reasonably  uni- 
form by  states  and  regions  and  represents  a  sufficient  volume  for 
the  entire  country  to  produce  a  true  indication  for  each  pure 
premium  element.     A  classification  of  this  type  is  3632 — "  Machine 
Shops — no  foundry/'  the  experience  of  which  is  reproduced  in  ex- 
hibit IV.4    For  this  classification  the  national  indications  were 
adopted  without  modification  and  no  exceptions  were  established. 
The  selected  pure  premiums  thus  correspond  to  the  indicated  pure 
premiums,  namely: 

D.  &P.T.D.  All  Other  Indemnity.  Medical.  Total. 

$.18  $.17  $.25  $1.20 

2.  A  second  case  of  common  occurrence  is  where  there  are  several 
classifications  so  related  from  the  standpoint  of  hazard  that  the 
combined  experience  of  the  group  is  representative.     A  group  of 
this  description  may  constitute  one  of  the  groups  of  the  Manual 
Classifications  Code  or  it  may  be  made  up  by  associating  classifica- 
tions within  a  single  code  group  or  from  several  different  code 
groups.     In  these  cases  the  group  experience  may  be  uniform  by 
states  and  may  aggregate  a  dependable  volume  for  the  United 
States  thus  enabling  the  committee  to  establish  the  country-wide 
indications  for  all  states  and  for  all  classifications  in  the  group. 
The  group  experience  is  then  the  basis  for  rate  making,  it  being 
used  as  the  experience  of  a  single  classification  would  be  used,  and 
the  results  applied  to  the  individual  classifications. 

A  case  in  point  is  group  161  of  the  Manual  Classifications  Code 
which  comprises  the  following  classifications: 

•  "  The  Technique  of  Bate  Making  as  Illustrated  by  the  1920  National 
Eevision  of  Workmen's  Compensation  Kates,"  by  G.  F.  Michelbacher, 
Proceedings  of  the  Casualty  Actuarial  and  Statistical  Society  of  America, 
Vol.  VI,  Part  II. 

4  See  page  19. 


SELECTION"    OF   BASIC    PUKE   PEEMIUMS. 


21 


2501 — Clothing  Manufacturing. 

2502 — Fur  Goods  Manufacturing. 

250  3 — Dressmaking. 

2520 — Collar  and  Cuff  Manufacturing. 

2521 — Shirt  Manufacturing. 

4416 — Eubber  Garments  Manufacturing — no  rubber  mill. 
The  regional  and  country-wide  indications  for  this  group  are  pre- 
sented in  the  following  table: 


Indicated  Pu 

re  Premiums 

Region. 

Payroll  Exposure. 

D.  & 
P.  T.  D. 

A.  O. 

Medical. 

Total. 

Eastern  .      ... 

$400  818  500 

$  02 

$11 

$  05 

«  1Q 

Central  
Western  

40,140,800 
7,142,300 

.05 
0 

.10 

09 

.03 
03 

.18 
12 

Southern  

4,583,800 

o 

.08 

03 

11 

LT.  S.  A  

452,685,400 

.02 

.11 

05 

18 

It  will  be  noted  that  if  account  is  taken  of  the  limited  exposure 
in  the  western  and  southern  regions  and  the  fact  that  no  "  D.  &  P. 
T.  D."  -losses  appear  in  either  experience,  the  indications  of  the 
total  pure  premiums  and  also  of  the  partial  pure  premiums  are 
fairly  uniform.  In  this  case  the  national  indications  were  adopted 
for  all  states  and  for  the  six  classifications  in  the  group. 

3.  The  next  type  includes  cases  of  classification  and  group  ex- 
perience which  have  developed  unique  indications  in  individual 
states  and  territories  requiring  the  establishment  of  exceptions. 
Such  a  case  is  that  of  classification  1321 — "  Oil  Producing — opera- 
tion of  oil  leases,  etc."  It  is  apparent  from  a  consideration  of  the 
nature  of  the  operations  falling  under  this  classification  that  a  single 
set  of  pure  premiums  for  the  United  States  would  not  measure  the 
varying  conditions  found  in  individual  states  in  which  this  in- 
dustry is  important.  This  is  fully  borne  out  by  a  review  of  the 
experience  for  the  more  representative  states  which  is  presented  in 
the  following  table : 


Region. 

Payroll  Exposure. 

Indicated  Pure  Premiums. 

D.  & 
P.  T.  D. 

A.  O. 

Medical. 

Total. 

Pennsylvania  .  . 
California  
Oklahoma  
Texas 

$5,127,000 
7,709,100 
9,298,200 
4,628,400 
30,872,500 

$1.14 
.41 
.29 
1.15 
.81 

$1.78 
.39 
1.07 
1.23 
1.03 

$.27 
.14 
.29 
.44 
.26 

$3.19 
.94 
1.65 

2.82 
2.10 

U.S.  A  

In  this  case  exceptions  were  established  for  the  states  of  Pennsyl- 
vania, California,  Oklahoma  and  Texas  based  upon  the  local  ex- 
perience in  each  state. 


22  SELECTION    OF   BASIC    PURE    PREMIUMS. 

I 

4.  There  are  many  cases,  however,  where  the  experience  of  a  single 
classification  or  even  the  experience  of  a  homogeneous  group  is  in- 
adequate. These  are  the  cases  presenting  difficulties.  No  practical 
criteria  have  been  developd  which  may  be  applied  to  the  payroll  or 
losses  for  the  purpose  of  measuring  the  adequacy  of  experience  for 
rate  making  purposes.  Judgment  is  still  an  important  factor.  It 
is  evident  that  the  losses  which  occur  with  the  greatest  frequency 
require  the  least  exposure  to  produce  a  dependable  indication,  and 
that  those  which  occur  infrequently  cannot  be  measured  except  by 
large  volumes  of  data.  In  general,  losses  furnish  the  most  reliable 
guide  to  a  dependable  experience  and  the  volume  necessary  to  pro- 
vide a  reliable  rate  making  basis  varies  from  the  "  Medical "  divi- 
sion, for  which  the  least  exposure  is  required,  to  the  "  D.  &  P.  T. 
D."  division,  where  the  experience  indication  is  only  conclusive  if 
the  exposure  is  large. 

Two  cases  will  illustrate  these  points.  Take,  for  example,  classifi- 
cation 3075 — "  Coppersmithing — shop  only."  For  this  classifica- 
tion the  total  payroll  for  the  United  States  was  $1,554,300  and  the 
indicated  pure  premiums  were  as  follows : 

D.  &  P.T.D.          All  Other  Indemnity.  Medical.  Total. 

0  $.48  $.26  $.74 

The  experience  obviously  was  so  limited  that  there  was  no  basis  for 
establishing  exceptions  for  individual  states  or  regions.  As  a 
matter  of  fact  the  country-wide  experience  itself  was  incomplete,  as 
evidenced  by  the  absence  of  death  and  permanent  total  disability 
losses.  In  this  case  the  committee  accepted  the  indications  of  the 
experience  for  the  "  All  Other  "  and  "  Medical "  pure  premiums  and 
supplied  the  "D.  &  P.  T.  D."  pure  premium  by  adopting  $.12,  the 
indication  for  a  number  of  related  groups  in  schedule  17. 

The  second  example  is  that  of  classification  5103 — "  Door,  Win- 
dow Frame,  or  Sash — erection  and  repair — metal  or  metal  covered." 
The  experience  for  this  classification  for  the  United  States  on  a 
payroll  exposure  of  $2,722,100  indicated  the  following  pure 
premiums : 

D.  &  P.T.D.  All  Other  Indemnity.  Medical.  Total. 

$1.95  $1.58  $.36  $3.89 

The  committee,  after  a  careful  review,  decided  that  the  "D.  &  P. 
T.  D."  indication  was  abnormal.  It  was  willing,  however,  to  accept 
the  "  All  Other  "  and  "  Medical "  indications  as  correct.  The  prob- 
lem was  to  find  a  "  D.  &  P.  T.  D."  pure  premium  which  might  be 
used  for  the  classification.  The  "D.  &  P.  T.  D."  indication  of 
group  664 — "  Ornamental  and  Architectural  Metal  Work  Within 
Buildings,"  the  group  in  which  classification  5103  falls  was  selected, 
the  adopted  pure  premiums  being  as  follows : 

D.  &  P.T.D.  All  Other  Indemnity.  Medical.  Total. 

$1.23  $1.58  $.36  $3.17 


SELECTION    OF   BASIC    PUEE   PREMIUMS.  23 

5.  Finally,  there  are  cases  where  there  is  some  experience  but  it  is 
of  such  small  volume  as  to  be  of  no  value  whatever  for  rate  making, 
or  where  there  is  no  available  experience  at  all.  These  will  arise 
where  the  classification  has  not  been  in  existence  long  enough  to  per- 
mit the  accumulation  of  a  representative  experience,  where  the 
classification  is  newly  erected,  or  where  an  existing  classification  is 
radically  amended,  thus  making  it  impossible  to  use  the  experience 
accumulated  under  the  old  wording  for  the  purpose  of  establishing 
pure  premiums  for  the  new  classification.  Such  cases  are  treated 
in  several  ways: 

(a)  They  may  be  found  to  represent  substantially  the  same 
hazards  as  classifications  for  which  experience  is  available  in  suffi- 
cient volume  for  rate  making  purposes,  in  which  event  the  pure 
premiums  of  the  analogous  classification  may  be  adopted. 

(&)  They  may  be  compared  with  some  classification  for  which 
experience  is  available  and  a  factor  of  relationship  established 
which  will  permit  the  derivation  of  pure  premiums  from  those 
established  for  the  related  classification. 

(c)  The    pure   premiums    may    be    established    entirely    upon 
judgment. 

( d)  The  existing  pure  premiums  may  be  continued. 

Several  cases  typical  of  this  class  may  be  described  as  follows : 
(a)  Prior  to  the  revision  there  was  a  single  classification  in  the 
manual  for  "  Fertilizer  Manufacturing."  This  was  classification 
4580 — "Fertilizer  Manufacturing — no  phosphate  companies."  It 
was  found  in  practice  that  this  classification,  which  carried  a  sub- 
stantial rate,  did  not  properly  reflect  the  hazards  of  certain  con- 
cerns, which  buy  ingredients  and  manufacture  fertilizer  by  the 
simple  process  of  mixing  these  materials  by  hand  and  putting  them 
in  sacks  or  other  containers.  During  the  revision  it  was  decided  to 
eliminate  classification  4580  and  to  erect  two  classifications  in  its 
place,  one  of  which  was  particularly  designed  to  fit  the  type  of  risk 
I  have  described  and  which  was  expressed  in  the  following  language : 
"Fertilizer  Dry  Mixing  Plants — excluding  the  manufacture  or 
handling  of  acid,  bone  and  rock  crushing,  and  the  preparation  of 
tankage — not  available  for  division  of  payroll."5  The  new  classi- 
fication could  not  be  compared  with  classification  4580  and  the 
experience  for  classification  4580  was,  therefore,  of  no  value  in 
determining  pure  premiums  for  it.  This  being  the  case  the  com- 
mittee sought  some  analogy  which  would  enable  it  to  determine 
pure  premiums.  The  new  classification  for  this  purpose  was  re- 
lated to  classification  4581  Phosphate  works — no  mining:  and  the 

5  The  ' '  not  available  for  division  of  payroll ' '  clause  means  that  the  classi- 
fication cannot  be  used  unless  it  describes  the  complete  operations  of  the 
risk.  It,  therefore,  cannot  be  used  to  cover  the  mixing  operations  of  a  fer- 
tilizer manufacturing  risk  which  manufactures  fertilizers  from  raw  ma- 
terials. 


24  SELECTION    OF    BASIC    PURE    PREMIUMS. 

following  pure   premiums — previously   adopted   for   classification 
4581 — were  established: 

D.  &  P.T.D.  All  Other  Indemnity.  Medtcal.  Total 

$.51  $.56  $.25  $1.32 

(&)  A  similar  case  is  that  of  a  new  classification  described  as 
follows :  "  Cord  and  Twine  Manufacturing — not  from  manilla, 
hemp,  sisal  or  jute — including  the  manufacture  of  cotton  rope  or 
cord."  In  the  absence  of  experience  this  classification  was  deemed 
to  represent  the  same  hazards  as  classification  2222 — "  Cotton  Spin- 
ning and  Weaving"  and  the  pure  premiums  of  classification  2222 
were,  therefore,  adopted. 

(c)  The  next  example  is  the  case  of  classification  4923 — "  Photo- 
graphic   Supplies    Manufacturing."      For    this   classification    the 
national  experience  was  deemed  to  be  entirely  out  of  line  and  was, 
therefore,  discarded.     In  the  absence  of  a  better  indication  the  old 
pure  premium  of  $.48  was  continued  and  arbitrarily  divided  as 
follows : 

D.  A  P.T.D.  All  Other  Indemnity.  Medical.  Total. 

$.12  $.24  $.12  $.48 

(d)  During  the  revision  the  " steel  making"  classifications  were 
radically  amended.     Prior  to  the  revision  the  classifications  had  in- 
cluded the  steel  making  processes  and  had  specifically  excluded 
rolling  mill  and  and  forging  operations  for  which  separate  classi- 
fications and  lower  rates  were  provided.     It  was  found  that  this 
division  of  the  industry  was  impracticable  and  the  new  classifica- 
tions, therefore,  include  rolling  mill  and  forging  operations.     For 
example  classification  3000 — "  Steel  Work — open  hearth,  bessemer, 
and  crucible,  or  open  hearth  and  bessemer,  casting  ingots,  and 
puddling  or  blooming  mill  operations"  was  eliminated  and  the 
following  classification  erected  in  its  place :  "  Steel  Making — open 
hearth  furnaces  including  bessemer,  with  blooming  mills  or  forg- 
ing and  rolling  mills — -excluding  blast  furnace  operation  and  coke 
manufacturing."     Naturally  the  experience  of  classification  3000 
could  not  be  used  to  obtain  pure  premiums  for  the  new  classifica- 
tion.    An  investigation  was  made  to  determine  the  relative  pro- 
portions of  "steel  making"  and  "rolling  mill"  operations  which 
would  fall  under  the  new  classification  and  the  pure  premiums  were 
obtained  by  using  the  experience  of  3000  as  well  as  the  experience 
of  3018 — "Iron  and  Steel  Rolling  Mills — n.-o.  c. — with  or  without 
puddling  furnaces,"  a  weight  of  two  being  assigned  to  the  latter 
experience  as  compared  with  the  weight  of  one  to  the  experience  for 
classification  3000,  these  being  the  proportions  of  payroll  for  the 
two  operations  assumed  to  be  included  under  the  new  classification. 


SELECTION    OF   BASIC    PURE   PEEMIUMS.  25 

Adjustment  of  D.  and  P.  T.  D.  Pure  Premiums. 

In  the  selection  of  basic  pure  premiums  it  had  been  necessary  to 
make  use  of  judgment  to  a  greater  extent  in  connection  with  death 
and  permanent  total  disability  than  with  other  types  of  losses.  As 
the  classifications  were  considered  by  the  committee  in  the  order  in 
which  they  appeared  in  the  manual  classifications  code  it  was  pos- 
sible for  inconsistencies  to  develop  in  the  selection  of  D.  and  P.  T. 
D.  pure  premiums  merely  because  all  classifications  of  similar  or 
related  hazard  were  not  necessarily  treated  at  the  same  time.  The 
D.  and  P.  T.  D.  pure  premiums  were  carefully  reviewed  and  a 
proper  relativity  established  between  them  by  the  elimination  of 
such  inconsistencies  as  were  found  to  exist. 

Test  of  Basic  Pure  Premiums. 

The  selection  of  basic  pure  premiums  is  altogether  a  process  of 
distributing  the  indicated  loss  experience  equitably  among  classifica- 
tions of  industry.  Aggregate  converted  losses  must  be  accepted 
as  the  most  accurate  possible  guide  to  probable  losses  on  the  basic 
level.  Accordingly  the  net  result  of  the  process  of  selection  should 
be  a  set  of  basic  pure  premiums  which,  when  applied  to  payrolls, 
would  reproduce  the  aggregate  converted  losses  and  which  would 
tend  to  reproduce  the  losses  of  individual  schedules,  groups  or 
classifications  to  the  extent  that  the  experience  indications  of  these 
divisions  were  dependable.  Total  converted  losses  for  the  entire 
payroll  considered  in  the  revision  amounted  to  $116,805,204. 
Total  losses  for  the  same  payroll,  using  basic  pure  premiums  as  an 
index,  showed  a  variation  from  actual  converted  losses  of  only  %0 
of  1  per  cent.  Tests  for  schedules,  groups  and  classifications  also 
yielded  satisfactory  results. 


CHAPTER   VI. 

^  TRANSLATION  FROM  BASIC  PURE  PREMIUMS  TO  STATE  PURE 

PREMIUMS. 

The  basic  pure  premiums  selected  by  the  rating  committee  are, 
as  has  been  indicated,  representative  of  the  New  York  1917  level  and 
of  the  relative  degrees  of  hazard  of  the  several  classifications  of 
industry.  The  converted  experience  which  was  used  as  a  guide  to 
their  selection  was  a  combination  of  the  1916-1917  experience  from 
twenty-five  states.  The  next  problem  in  the  rate  making  process 
is  that  of  passing  back  from  the  basic  level  to  the  level  of  each 
state  in  order  that  rates  may  be  made  which  will  reflect  individual 
state  conditions,  and  which,  at  the  same  time,  will  be  based  upon 
the  indications  of  hazard  furnished  by  the  entire  combined 
experience. 

Translation  Factors. 

This  process  of  translating  basic  pure  premiums  into  state  pure 
premiums  calls  for  the  determination  of  factors  which,  when  ap- 
plied to  the  basic  pure  premiums,  will  so  amend  them  as  to  make 
the  results  representative  of  the  individual  state  on  the  combined 
1916  and  1917  policy  year  basis.  For  the  same  reasons  that  con- 
version of  experience  was  effected  separately  for  three  types  of  losses 
and  for  three  groups  of  classifications,  separate  translation  factors 
were  applied  to  each  of  these  divisions. 

For  the  D.  and  P.  T.  D.  loss  element  a  comparison  of  average 
values  was  made.  A  figure  representing  average  losses  for  each 
schedule  in  the  additional  state  was  compared  with  the  average  loss 
figure  for  the  same  schedule  in  the  basic  state  and  the  ratio  adopted 
as  a  translation  factor.  For  example,  if  the  average  loss  figure 
for  schedule  23  for  a  given  state  were  $4,000  this  would  be  com- 
pared with  the  New  York  figure  of  $4,400  and  the  translation 
factor  would  be  W/u  (.90909).  A  basic  pure  premium  of  0.22 
would  produce  a  state  pure  premium  of  $0.20  for  the  state  in 
question. 

It  was  decided  to  adopt  as  translation  factors  for  the  "  all  other  " 

26 


TRANSLATION    FROM    BASIC    TO    STATE    PURE   PREMIUMS.         27 

and  "medical"  loss  elements  the  reciprocals  of  the  conversion 
factors.  For  example,  if  state  losses  were  converted  to  the  basic 
level  by  multiplying  by  2,  basic  pure  premiums  would  be  trans- 
lated to  the  state  level  by  multiplying  by  %.  At  first  this  might 
seem  to  be  a  strictly  accurate  method.  But  it  should  be  remem- 
bered that,  in  determining  each  set  of  conversion  factors  the  experi- 
ence of  only  two  states  was  considered,  that  of  the  basic  state  and 
that  of  the  additional  state  in -question.  In  translation,  however, 
there  is  involved  the  combined  experience  of  all  of  the  states. 
Tests  showed,  however,  that  the  use  of  these  reciprocals  furnished 
a  sufficiently  close  approximation,  the  results  of  which  could  easily 
be  trued  up  by  the  committee  so  as  to  make  the  translated  pure 
premiums  properly  representative. 

As  an  example  of  the  translation  process  a  simple  hypothetical 
case  may  be  taken.  Suppose  the  following  basic  pure  premiums 
have  been  established  for  a  given  classification : 

D.  and  P.  T.  D 80 

All  other  indemnity   1.00 

Medical    .50 

Total  2.30 

Suppose,  further,  that  translation  factors  are  calculated  as  follows : 

D.  and  P.  T.  D 50 

All  other  indemity 75 

Medical 1.00 

The  state  pure  premiums  would  be 

Basic        Translation  State 

P.P  Factor.  IP. P. 

D.  and  P.  T.  D 80  X  .50  =  .40 

All  other  indemnity 1.00  X  .75  =  .75 

Medical .50  X  1.00  =  .50 

Totals   lUO  1.65 

Where  the  state  experience  for  an  individual  classification  was 
sufficient  for  rate-making  purposes  it  was,  of  course,  unnecessary  to 
use  translation  factors,  the  state  pure  premiums  being  indicated  by 
the  actual  pure  premiums.1 

1  A  sample  working  sheet  used  in  the  translation  process  is  reproduced  in 
Appendix  XI.  It  should  be  noted  that  the  term  "  projection "  as  used  on 
the  sheet  is  equivalent  to  ' '  translation ' '  as  used  in  the  present  report. 


28         TRANSLATION    FBOM    BASIC    TO    STATE    PUKE    PREMIUMS. 

Tests  of  State  Pure  Premiums. 

As  the  state  pure  premiums  were  a  measure  of  losses  under  1916- 
1917  conditions  for  each  state  they  should,  when  applied  to  the 
1916-1917  payrolls,  reproduce  quite  closely  the  actual  losses  of  that 
period.  They  should  also  reproduce  approximately  the  losses  of 
those  schedules  and  classifications  where  there  was  a  large  exposure. 
Tests  were  conducted  for  each  state  to  compare,  for  the 'state  as  a 
whole  and  for  each  schedule,  the  actual  losses  and  the  losses  indi- 
cated by  the  application  of  the  state  pure  premiums.  Similar  com- 
parisons were  made  for  selected  classifications  wherever  it  seemed 
advisable. 

The  results  of  these  tests  were  presented  to  the  General  Eating 
Committee  in  order  that  such  changes  might  be  made  as  seemed 
necessary  to  adjust  the  state  pure  premiums  to  the  state  experience. 
Thus,  when  finally  adopted  these  pure  premiums  could  be  said  to 
reflect  national  experience,  state  experience,  and  expert  adjustment. 

Law  Differential  Method. 

In  certain  states  for  which  experience  data  covering  the  years 
1916-1917  were  not  available3  factors  were  calculated  which,  when 
applied  to  the  basic  pure  premiums,  produced  state  pure  premiums 
on  the  1920  level.  The  calculation  of  these  factors  was  facili- 
tated by  the  construction  of  the  American  Accident  Distribution 
table,4  which  is  a  statement  of  the  consequences  of  100,000  accidents 
in  terms  of  degree  of  disability,  of  length  of  disability,  and  of 
number  and  status  of  dependents  in  fatal  cases,  prepared  from  the 
latest  available  statistics  of  accidents  occurring  in  the  United 
States.  There  was  calculated  the  cost  of  compensating  these  acci- 
dents under  the  terms  of  the  New  York  1917  law  with  a  1917  wage 
distribution  and  under  the  terms  of  the  law  for  each  of  the  excep- 
tional states  with  a  1919  wage  distribution.  The  ratio  between 
total  costs  for  the  two  jurisdictions  constituted  the  factor  to  be 
applied  in  order  to  pass  from  basic  pure  premiums  to  state  pure 
premiums.  These  factors  were  calculated  for  each  division  of  the 
pure  premium. 

The  law  differential  method  can  be  discarded  as  soon  as  the 
states  for  which  it  is  used  develop  adequate  experience. 

s  Alabama,  Idaho,  Montana,  New  Mexico,  South  Dakota,  Tennessee  and 
Virginia.  There  was  some  experience  available  for  New  Mexico  and  South 
Dakota,  but  it  was  so  meager  as  to  be  of  little  use. 

*  See  Appendix  XII. 


CHAPTER   VII. 

PROJECTION  TO  1920  LEVEL. 

Thus  far  there  has  been  explained  the  process  of  determining 
pure  premiums  or  compensation  costs  for  the  1916-1917  period  of 
exposure.  But  the  gross  or  manual  rates  for  which  these  pure 
premiums  will  serve  as  a  basis  are  to  be  charged  during  the  policy- 
year  1920.  The  relation  of  probable  1920  costs  to  1916-1917  costs 
must  be  ascertained  and  the  latter  corrected  to  bring  them  to  the 
1920  level.  This  correction  from  a  past  to  a  future  level  is  known 
as  "projection." 

Projection  to  1919  Level. 

The  actuarial  work  incidental  to  projection  was  done  during  1920 
when  the  latest  calendar  year  data  available  were  for  the  year  1919. 
Consequently,  the  possibility  of  projection  of  pure  premiums  on  an 
experience  basis  was  limited  to  that  year  and,  as  it  was  the  general 
policy  of  the  Council  to  eliminate  personal  judgment  from  the  cal- 
culation of  the  new  rates  as  far  as  possible,  it  was  decided  first  to 
bring  pure  premiums  to  the  1919  level.  To  this  end  there  was 
developed  the  "  loss  ratio  method  of  projection,"  an  actuarial  device, 
which  had  not  before  been  used  in  compensation  rate-making. 

The  Loss  Ratio  Method. 

The  loss  ratio  of  an  insurance  carrier  or  of  a  group  of  carriers 
is  the  percentage  of  premiums  earned  which  is  represented  by  losses 
incurred  under  the  policies  to  which  the  premiums  apply.  If  a 
carrier  wrote  policies  for  which  premiums  of  $500,000  were  charged 
during  a  given  policy-year  and  if  losses  incurred  under  these  poli- 
cies amounted  to  $300,000  the  loss  ratio  for  the  year  would  be 
60  per  cent.  Suppose  that  during  the  policy  years  1916  and  1917 
combined  the  premiums  of  all  carriers  in  a  given  state  amounted 
to  $100,000,000  while  losses  incurred  under  policies  written  during 
those  years  amounted  to  $52,000,000.  Suppose  further  that  with 
no  change  in  premium  rates,  premiums  for  policy-year  1919 
amounted  to  $110,000,000,  losses  amounting  to  $71,500,000.  The? 

29 


30  PROJECTION  TO  1920  LEVEL. 

loss  ratio  for  1916-1917  is  52  per  cent,  and,  for  1919,  65  per  cent. 
Under  the  assumption  premium  rates  have  not  changed.  There- 
fore, since  the  ratio  between  total  losses  and  total  premiums  has 
increased  there  must  have  been  an  increase  in  the  rate  of  loss. 
The  increase  in  loss  ratios  amounts  to  25  per  cent,  or,  in  other 
words,  the  1919  loss  ratio  amounts  to  the  1916-1917  loss  ratio 
multiplied  by  1.25. 

Eates  of  loss  are  expressed  in  terms  of  pure  premiums  per  $100 
of  payroll.  An  increase  in  the  loss  ratio,  premium  rates  remaining 
the  same,  is  equivalent  to  an  increase  in  pure  premium  cost.  The 
factor  measuring  the  increase  in  loss  ratio  may  be  applied  to  correct 
1916-1917  pure  premiums  to  the  1919  level.  Following  out  the 
example  used  above  a  pure  premium  of  $0.60  for  1916-1917  would 
be  corrected  to  $0.75  for  1919  ($0.60  X  1.25). 

This  hypothetical  example  has  been  presented  in  order  to  convey, 
in  the  simplest  terms,  the  theory  underlying  the  first  and  most 
important  step  in  the  projection  of  rates  in  the  1920  revision.  The 
actual  method  employed  in  each  state  may  now  be  described.1 

1919  Loss  Ratio. 

The  first  problem  was  to  calculate  a  loss  ratio  for  policy-year 
1919.  For  this  purpose  there  were  needed  the  total  premiums 
charged  on  policies  written  during  1919,  and  the  total  losses  in- 
curred under  these  policies.  Ultimate  figures  of  premiums  applic- 
able to  1919  policies  will  not  be  available  until  1921  when  the  last 
of  these  policies  will  have  expired  and  an  audit  have  been  made  of 
the  payrolls  on  which  the  premiums  are  based.2  Investigation  dis- 
closed the  fact  that  the  "  Net  Premiums  Written,"3  which  are  known 
shortly  after  the  close  of  each  calendar  year,  bear  a  fairly  stable 
relationship  to  the  premiums  ultimately  paid  for  the  corresponding 
policy-year.  By  determining  this  relationship  in  a  given  state,  and 

2  This  description  will  be  in  general  terms.  For  purposes  of  more  de- 
tailed study  there  is  presented  in  Appendix  XIII,  the  complete  calculation 
for  the  state  of  New  York. 

2  In  workmen 's  compensation  insurance  the  premium  originally  charged 
to  an  employer  is  based  on  an  estimate  of  his  payroll  for  the  period  during 
which  the  policy  is  to  be  in  effect.      The  premium  ultimately  paid  is  de- 
termined after  the  policy  has  expired  and  after  the  employer's  payroll  has 
been  audited. 

3  I.e.,  the  premiums  originally  charged  on  estimated  payroll,  less  return 
premiums  and  premiums  paid  for  reinusrance. 


PEOJECTIOtf  TO  1920  LEVEL.  31 

by  applying  a  factor  to  the  1919  net  premiums  written,  there  was 
obtained  a  figure  for  ultimate  premiums  on  policies  of  that  year. 
If,  for  example,  it  was  discovered  that  ultimate  premiums  were  50 
per  cent,  more  than  average  net  premiums  written  as  reported  at 
the  end  of  the  calendar  year  and  if,  at  the  end  of  1919,  net 
premiums  written  were  reported  as  amounting  to  $30,000,000,  ulti- 
mate premiums  for  policy -year  1919  could  be  estimated  to  amount 
to  $45,000,000. 

Having  a  figure  for  premiums  it  remains  to  ascertain  the  amount 
of  incurred  losses.  For  this  purpose  a  similar  calculation  was  used 
since  it  would  have  been  impossible  to  secure  complete  statistics  for 
policy  year  1919  until  all  of  the  contracts  written  during  that  year 
had  terminated.  In  this  case  a  stable  relationship  was  discovered 
between  the  losses  paid  during  each  calendar  year  on  policies  issued 
during  that  year,  as  reported  at  the  end  of  the  year,  and  the  ultimate 
losses  incurred*  for  the  corresponding  policy  year.  This  relation- 
ship may  be  expressed  in  terms  of  a  factor  which,  when  applied  to 
losses  paid  during  calendar  year  1919,  will  produce  the  probable 
ultimate  incurred  losses  for  policy-year  19 19.5  For  example,  if,  in 
a  given  state,  the  losses  paid  during  the  calendar  year  averaged 
16%  per  cent,  of  losses  incurred  for  the  policy-year,  and  if  losses 
paid  during  1919  on  issues  of  1919  amounted  to  $4,000,000,  ulti- 
mate incurred  losses  for  policy-year  1919  could  be  taken  at 
$24,000,000. 

The  loss  ratio  for  1919  would  be,  under  these  conditions,  53  per 
cent.,  obtained  by  comparing  $24,000,000  of  losses  and  $45,000,000 
of  premiums. 

1916-1917  Loss  Ratios. 

The  next  step  is  to  secure  a  loss  ratio  for  policy  years  1916-1917 
of  which  the  state  pure  premiums  are  representative.  This  is  a 
simpler  matter.  Premiums  are  calculated  by  applying  to  the 
payrolls  of  1916-1917  the  1919  manual  rates  discounted  to  allow 

*  For  an  explanation  of  "paid"  and  incurred  losses  see  page  12. 

s  It  must  be  understood  that  a  certain  degree  of  judgment  is  involved  in 
the  development  of  these  figures  for  1919.  Any  method  of  projection  re- 
quires the  use  of  incomplete  experience  which  must  be  supplemented  by 
judgment.  The  present  method  seems,  however,  to  accomplish  the  desired 
result  with  the  least  possible  use  of  this  element. 


32  PROJECTION  TO  1920  LEVEL. 

i 

for  the  effect  of  merit  rating.6  By  this  application  the  assumption 
made  in  the  hypothetical  example7  that  premium  rates  did  not 
change  would  be  satisfied.  The  actual  losses  incurred  during  1916- 
1917  are  available  since  they  are  the  fundamental  figures  for  the 
calculation  of  basic  pure  premiums.  These  actual  losses  may  now 
be  compared  with  the  premiums  produced  by  the  application  of 
1919  rates  to  1916-1917  payroll  and  a  loss  ratio  for  1916-1917 
produced. 

Suppose  that  the  application  of  1919  rates  to  1916-1917  payrolls 
produced  $36,000,000  in  premiums  and  that  losses  for  1916-1917 
amounted  to  $20,000,000.  The  figures  produce  a  loss  ratio  of  56 
per  cent,  to  be  compared  with  a  1919  loss  ratio  of  53  per  cent. 
Fifty-three  per  cent,  is  94.6  per  cent,  of  56  per  cent.,  indicating  a 
reduction  of  5.4  per  cent,  in  the  level  of  losses  between  the  two 
periods. 

The  state  pure  premiums  should,  in  this  case,  be  discounted  by 
5.4  per  cent,  or,  in  other  words,  multiplied  by  94.6  per  cent,  to 
obtain  pure  premiums  on  the  1919  level. 

So  far  nothing  has  been  said  concerning  the  causes  of  changes 
in  jmre  premium  level.  In  previous  revisions  such  causes  were 
analyzed  and  an  attempt  made  to  measure  the  effect  of  each  im- 
portant cause  by  a  factor  to  be  introduced  into  the  calculation  of  the 
rate.8  These  factors  represented  the  best  judgment  of  actuaries 
guided  by  such  statistics  as  could  be  obtained.  But,  since  they  were 
primarily  based  on  judgment  they  were,  to  a  considerable  degree, 
conjectural.  It  is  the  purpose  of  the  1920  method  not  to  determine 
causes  of  change  in  rates  of  loss  but  to  measure  changes  as  a  whole 
by  means  of  the  actual  experience  of  carriers.  The  result  achieved 
by  the  loss  ratio  method  is  the  net  effect  of  all  influences  tending 
toward  a  reduction  or  toward  an  increase  in  losses,  a  result  resting 
directly  on  statistics  rather  than  on  judgment. 

6  The  use  of  merit  rating  plans  reduces  the  premiums  actually  collected 
below  the  level  indicated  in  the  manual.      Since  the  1919  premiums  would 
be  thus  affected  it  is  necessary  to  make  a  proper  allowance  in  calculating 
1916-1917  premiums  on  the  1919  basis. 

7  Page  29. 

8  See  Report  on  Work  of  the  Augmented  Standing  Committee  on  Work- 
men's  Compensation  Insurance  Bates — 1917,  pp.  75  ff. 


PROJECTION  TO  1920  LEVEL.  33 

Amendment  Factors. 

The  committee  decided  to  assume  that  1919  conditions  with  one 
exception  would  obtain  during  1920.  This  assumption  was  made 
in  order  to  avoid  the  introduction  of  conjectural  factors  such  as 
would  be  involved  in  any  attempt  to  predict  1920  conditions  affect- 
ing the  level  of  cost.  The  one  exception  was  made  where  amend- 
ments to  the  law  had  been  passed  which  would  be  in  effect  during 
1920  but  which  had  not  been  reflected  in  losses  paid  during  1919. 
Factors  to  take  account  of  such  amendments  were  calculated  by 
using  the  American  Accident  Distribution,  already  described  on 
page  28.  The  additional  cost  of  compensating  accidents  to  which 
each  amendment  would  give  rise  was  calculated  and  expressed  in 
terms  of  factors  to  be  applied  to  each  division  of  the  pure  premiums. 
If  in  a  given  case  an  amendment  increased  D.  &  P.  T.  D.  benefits  by 
25  per  cent,  while  no  changes  were  made  in  other  benefits  factors 
would  be  applied  as  follows: 

D.  and  P.  T.  D 1.25 

All  other   1.00 

Medical 1.00 

Continuing  the  example  given  on  page  27  and  inserting  factors 
for  projecting  to  the  1919  level  and  for  amendments. 


D    &  P    T   D 

State  Pure  ] 
miums  1916-] 
40 

Pre- 
1917. 

X 
X 
X 

Projection          Amendment    Pure  Premiums 
Factor.                Factors.           1920  Level. 

.946       X       1.25       =       .48 
.946       X       1.00      s=s      .71 
.946       X       1.00      =a      .47 
1.06 

All  other  

75 

Medical 

50 

Totals    . 

.   L65 

Manual  Rates. 

All  of  the  work  which  has  been  described  has  had  as  its  aim  the 
determination,  for  each  classification  of  industry,  of  probable  loss 
costs  during  policy-year  1920.  This  is  the  most  difficult  and  most 
important  work  of  a  revision,  for  loss  costs  vary  between  wide 
limits  and  on  them  depend  variation  in  charges  between  industries. 

To  produce  manual,  or  gross  rates  charged  to  the  insured,  there 
must  be  added  to  the  probable  loss  cost  certain  loadings  which  are 
explained  in  the  succeeding  chapter. 


CHAPTER  VIII. 
MANUAL  RATES. 

Manual  rates,  as  finally  charged  to  the  insured  are  a  compound 
of  two  elements,  losses  and  expenses.  The  pure  premium  brought 
to  the  level  of  the  period  during  which  rates  are  to  be  charged 
represents  the  normal  loss  cost  as  indicated  by  experience.  It  re- 
mains to  take  account  of  the  effect  of  merit  rating  on  the  rates 
actually  collected,  of  the  abnormal  catastrophe  loss  hazard,  and  of 
expenses  of  carrying  on  the  business  of  compensation  insurance. 

Effect  of  Merit  Eating. 

The  application  of  merit  rating  plans1  has  in  general  been  found 
to  produce  an  excess  of  credits  over  debits,  which  has  had  the  effect 
of  reducing  the  premiums  actually  collected  by  carriers  below  the 
average  called  for  by  the  manual  rate.  As  this  average  is  intended 
to  be  just  sufficient  to  cover  losses  and  expenses  any  reduction  might 
involve  the  carrier  in  a  deficit.  So  far  as  experience  rating  is  con- 
cerned it  is  expected  that  this  tendency  will  be  eliminated  by  the 
new  plan  now  in  process.  It  was  considered  impractical  to  make 
necessary  and  fundamental  revisions  in  the  schedule  rating  plan  to 
take  effect  in  1920.  Accordingly,  the  level  of  manual  rates  in 
classifications  subject  to  schedule  rating  was  adjusted  so  that,  after 
the  schedule  has  been  applied,  the  average  rate  collected  will  be  a 
close  measure  of  probable  cost.  This  adjustment  was  effected  by 
multiplying  the  final  (1920)  pure  premium  by  a  factor  of  1.045  in 
New  York  and  of  1.06  in  most  of  the  remaining  states. 

Catastrophe  Hazard. 

In  the  selection  of  basic  pure  premiums  all  catastrophe  losses  not 
normal  in  an  industry  were  eliminated  from  the  experience.  There 
is,  therefore,  no  provision  in  pure  premiums  for  the  abnormal 

i  For  a  brief  general  statement  of  the  purposes  and  methods  of  merit 
rating  see  Appendix  XIV. 

34 


MANUAL   RATES.  35 

catastrophe  hazard,  the  hazard  of  unusually  large  single  losses,2 
which  is  present  even  in  the  lowest  rated  industries  but  which  makes 
itself  felt  only  sporadically.  To  create  a  fund  to  meet  these  losses 
a  loading  of  $0.01  was  included  in  each  manual  rate. 

Expenses. 

Expenses  of  stock  insurance  carriers  in  connection  with  compen- 
sation insurance  are  expected  to  amount,  in  states  having  normal 
taxes,  to  38  per  cent,  of  the  manual  rate  before  the  addition  of  the 
catastrophe  loading.  This  38  per  cent.  i»  made  up  of  the  following 
items : 

Acquisition  cost   17.5% 

Home  office  administration   8.0 

Inspection  and  Accident  Prevention   . 2.0 

Adjustment  of  claims 7.0 

Taxes — state    2.0 

Taxes — federal  and  miscellaneous   1.5 

Total 38.0% 

In  certain  states  where  taxes  exceed  2  per  cent,  of  the  gross  premium 
sufficient  allowance  must  be  made  to  cover  the  extra  assessment.  In 
Maryland,  for  instance,  there  is  a  levy  of  3  per  cent.,3  making  the 
total  expense  loading  for  that  state  39  per  cent. 

Calculation  of  Manual  Rate. 

All  of  the  elements  entering  into  the  final  manual  rate  have  now 
been  explained.  The  example  already  used  which  produced  a  final 
pure  premium  of  $1.66*  may  be  extended  to  serve  in  the  calculation 
of  a  manual  rate.  Assuming  that  the  classification  involved  is 
subject  to  schedule  rating  and  applying  the  factor  1.06 

1.66X1-06  —  1.76. 

The  following  formula  indicates  the  process  of  obtaining  the 
manual  rate. 

Final  Pure  Premium  (loaded  for  schedule  rating) 
Manual  Eate  =  —  — -r. —  — y — ^ .     >. 

(1 — expense  loading) 

+  Catastrophe  loading. 

2  A  catastrophe  is  defined  as  an  accident  involving  five  or  more  D.  and 
P.  T.  D.  cases. 

s  Including  the  levy  for  maintenance  of  the  Industrial  Accident  Board. 
4  See  pp.  27  and  33. 


36  MANUAL  BATES. 

Substituting 

Manual  Rate=—       -  +  Ic. 
1  —  .00 

Therefore,  Manual  Rate  =  $2.85. 

The  premium  charged  to  the  insured  per  $100  of  payroll  in  this 
hypothetical  case  would  be  $2.85.  Actual  rates,  using  New  York  as 
an  example,  vary  from  $0.07  to  $28.99. 


CHAPTEE   IX. 
CONCLUSION. 

In  the  preceding  chapters  the  work  of  the  National  Council  in 
the  1920  revision  has  been  explained  in  detail.  This  work  repre- 
sents a  distinct  advance  in  compensation  insurance  rate  making. 
It  has  involved  the  improvement  of  old  and  the  development  of  new 
methods.  To  summarize  the  results  which  have  been  attained : 

1.  The  field  from  which  experience  was  drawn  was  extended  far 
beyond  that  which  had  contributed  to  earlier  revisions.  The  ex- 
perience was  larger  in  volume  and  more  representative  in  character. 

2. ,  Experience  was  combined  on  a  statistical  basis  which  gave 
expression  to  the  recorded  differences  between  states. 

3.  Basic  pure  premiums  were  selected  in  the  light  of  better  and 
wider  experience  presented  in  more  intelligible  form  than  hereto- 
fore.    This  has  resulted  in  a  redistribution  of  loss  costs  among 
classifications  which  more  truly  reflects  their  relative  hazards. 

4.  The  gap  between  pure  premiums  developed  from  past  experi- 
ence and  probable  future  loss  costs  was  bridged  by  a  logical  process 
resting  on  statistical  information  and  involving  a  minimum  of 
conjecture. 

5.  Individual  state  experience  was  recognized  to  the  extent  that 
it  was  indicative,  particularly  in  testing  out  the  aggregate  results 
or  conclusions  in  individual  cases. 

6.  Separate  treatment  was  given  to  different  types  of  compensa- 
tion benefits  through  the  adoption  of  the  partial  pure  premium  basis 
for  the  combination  of  experience  and  for  the  projection  of  losses. 

7.  Useless  classifications  were  eliminated,  new  classifications  were 
erected  wherever  necessary  and  the  wording  of  old  classifications  was 
revised  in  the  interest  of  clarity. 

8.  There  was  evidenced  a  greater  degree  of  harmonious  coopera- 
tion among  the  different  types  of  carriers  and  among  the  various 
compensation  authorities. 

9.  In  all  of  the  details  of  the  work  greater  reliance  was  placed 
on  statistics  and  on  the  work  of  actuaries  and  of  statisticans.     The 
introduction  of  personal  judgment  was  correspondingly  lessened. 

37 


38  CONCLUSION. 

THE  FUTURE. 

One  of  the  principal  faults  in  rate-making  as  it  has  been  carried 
on  in  the  past  has  been  the  lack  of  response  to  changes  in  condi- 
tions affecting  losses.  The  necessity  of  waiting  for  experience  to 
mature,  the  difficulty  and  expense  of  revisions  and  the  absence  of  an 
effective  national  body  representing  all  interests  have*  contributed 
to  this  condition.  The  National  Council  has  as  its  most  important 
problem  a  more  accurate  and  more  prompt  response  to  changes  in 
conditions.  This  means  a  development  of  organized  rate-making 
which  will  provide  for  a  continuing  accumulation  of  statistics,  both 
of  loss  experience  and  of  other  related  facts.  There  must  be,  like- 
wise, continuing  investigation  of  methods  for  the  collection  and 
interpretation  of  such  statistics. 

While  the  recognition  of  every  factor  affecting  compensation 
costs,  whether  of  losses  or  of  expenses,  is  to  be  desired,  efforts  in 
this  direction  sometimes  carry  with  them  an  unwarranted  complica- 
tion of  procedure.  Complicated  causes  often  express  themselves  in 
relatively  simple  results  which  may  be  measured  by  equally  simple 
devices.  To  the  extent  that  it  can  be  achieved  without  unduly 
sacrificing  accuracy,  simplicity  in  rate-making  is  a  virtue.1 

i  For  more  detailed  discussions  of  the  principles  and  methods  of  the  1920 
revision  the  reader  is  referred  to  ' '  The  Technique  of  Bate-Making  as  Illus- 
trated by  the  1920  National  Revision  of  Workmen's  Compensation  Insur- 
ance Bates "  by  G.  P.  Michelbacher,  and  "The  Actuarial  Problems  of  the 
1920  National  Eevision  of  Workmen  7s  Compensation  Rates  and  the  Solutions 
Developed  in  the  Actuarial  Committee  of  the  National  Council,"  papers 
appearing  in  the  Proceedings  of  the  Casualty  Actuarial  and  Statistical  So- 
ciety of  America,  Vol.  VI,  Part  II. 


APPENDICES  TO  EEPOET  ON  1920  EEVISION  OF  WORK- 
MEN'S COMPENSATION  INSURANCE  RATES. 


.APPENDIX  I. 

APPENDIX  II. 

APPENDIX  III. 

APPENDIX  IV. 

APPENDIX  V. 

APPENDIX  VI. 

APPENDIX  VII. 

APPENDIX  VIII. 

APPENDIX  IX. 

APPENDIX  X. 

APPENDIX  XI. 


APPENDIX  XII. 
APPENDIX  XIII. 
APPENDIX  XIV. 


Articles  of  Organization  of  the  National  Ref- 
erence Committee  on  Schedule  Rating. 

Articles  of  Organization  of  the  National  Coun- 
cil on  Workmen's  Compensation  Insurance. 

Constitution  of  the  National  Council  on  Work- 
men's Compensation  Insurance. 

Committees  of  the  National  Council  on  Work- 
men's Compensation  Insurance. 

Maryland  Compensation  Rate  Sheet. 

Examples  of  Reports  on  Schedule  "Z." 

Table  of  Average  Values  for  Converting  D.  & 
P.  T.  D.  Losses. 

Working  Sheet  for  Calculation  of  the  Illinois 
Conversion  Factor  for  "All  Other"  Losses, 
Group  I. 

Table  of  Conversion  Factors  Used  in  the  1920 
Revision. 

Aggregate  Experience  Used  in  1920  Revision. 
(a)  By  States. 
(&)  By  Schedules. 

Working  Sheet  Illustrating  the  Translation 
from  Basic  Pure  Premiums  to  State  Pure 
Premiums. 

American  Accident  Table. 

Calculation  of  Projection  Factor  for  New  York. 

Merit  Rating. 


39 


APPENDIX  I. 

NATIONAL  EEFERENCE  COMMITTEE  ON   SCHEDULE 
ARTICLES  OF  ORGANIZATION. 

I.  Name. 

The  name  of  this  Committee  shall  be  the  National  Reference 
Committee  on  Schedule  Rating. 

II.  Purposes. 

The  purposes  of  this  Committee  are : 

(a)  To  secure  and  maintain  uniformity  in  the  application  of 
schedule  rating  for  purposes  of  workmen's  compensation  premium 
computation. 

(&)  To  secure  and  maintain  a  proper  consistent  relationship 
between  the  rating  schedules  in  the  several  states,  having  due  re- 
gard for  exceptional  state  conditions. 

(c)  To  secure  and  maintain  uniform  rules  and  procedure  gov- 
erning the  application  of  the  rating  schedules. 

III.  Membership  and  Officers. 

The  membership  of  the  Committee  shall  be  composed  of  six  in- 
surance carriers  engaged  in  the  business  of  workmen's  compensa- 
tion insurance  as  follows: 

Three  stock  insurance  companies. 
Two  mutual  insurance  companies. 
One  state  insurance  fund. 

These  members  shall  be  chosen  by  a  majority  vote  of  the  Man- 
agers of  Rating  Bureaus  or  Boards  subscribing  to  this  agreement. 
The  members  shall  be  elected  annually  and  hold  office  until  De- 
cember 31st  of  each  year,  or  until  their  successors  have  been  duly 
elected  as  herein  provided.  Retiring  members  of  the  Committee 
shall  be  eligible  for  re-election.  Vacancies  in  the  Committee  shall 
be  filled  in  the  same  manner  as  provided  for  original  elections  and 
shall  be  for  the  unexpired  term. 

A  State  Department  having  supervision  over  "Workmen's  Com- 
pensation rates,  selected  in  the  manner  provided  for  the  election  of 
members  of  the  Committee,  shall  be  invited  to  preside  through  its 
designated  representative  at  all  meetings  of  the  Committee.  No 
one  such  Department  shall  be  invited  to  act  as  Chairman  of  the 
Committee  for  more  than  one  successive  period  of  twelve  months. 

40 


NATIONAL  REFERENCE   COMMITTEE  ON   SCHEDULE  EATING.      41 

The  Committee  shall  elect  one  of  the  subscribing  Bureaus  or 
Boards  as  Secretary  to  serve  during  the  pleasure  of  the  Committee. 

IV.  Duties  of  Officers. 

The  Chairman  shall  preside  at  all  meetings  of  the  Committee 
but  may  not  vote  on  the  proposals  before  the  Committee.  The 
Secretary  shall  keep  a  record  of  the  proceedings  of  the  Committee, 
transmitting  to  members  and  to  the  Managers  of  the  subscribing 
bureaus  information  and  agenda  as  hereinafter  provided. 

V.  Relations  with  Subscribing  Bureaus. 

No  subscribing  bureau  shall  put  into  effect  any  change  until 
after  the  proposed  change  shall  have  been  referred  to  the  Refer- 
ence Committee,,  except  that  in  cases  of  extreme  urgency  a  subscrib- 
ing Bureau  may  put  into  effect  a  proposed  change  provided  that  its 
rating,  safety  inspection  or  other  committee  having  jurisdiction 
over  the  Eating  Schedule  has,  after  due  consideration,  determined 
that  such  urgency  exists.  In  any  such  case  the  Manager  of  such 
Bureau  shall,  nevertheless,  advise  the  Reference  Committee  of  such 
action  in  the  same  manner  as  hereinafter  provided  for  ordinary 
proposals,  so  that  the  Committee  may  consider  the  advisability  of 
a  similar  change  for  other  jurisdictions. 

VI.  Procedure. 

1.  Whenever  the  proper  committee  of  a  subscribing  bureau  shall 
propose  to  create,  abolish  or  amend  any  item,  rule  or  standard 
in  the  Rating  Schedule,  the  Manager  of  such  bureau  shall  immedi- 
ately transmit  to  the  Secretary  of  the  National  Reference  Commit- 
tee on  Schedule  Rating  a  description  of  the  proposed  change  in- 
cluding a  concise  statement  of  the  reasons  therefor  and  a  summary 
of  all  data  upon  which  the  proposal  is  predicated.    The  Secretary 
of  the  National  Reference  Committee  on  Schedule  Rating  shall 
immediately  upon  its  receipt  place  it  upon  the  agenda  for  the  next 
meeting  of  the  Committee. 

2.  Not  less  than  ten  days  before  a  meeting  of  the  National  Ref- 
erence Committee  on  Schedule  Rating  the  Secretary  shall  prepare 
and  transmit  to  all  members  of  the  Committee  an  agenda  showing  the 
matters  to  be  considered  at  such  meeting,  and  attach  to  such  agenda 
copies  of  all  statements  relating  thereto  received  from  the  Man- 
agers of  the  Bureaus  proposing  the  changes.     Proposals  received 
by  the  Secretary  after  date  of  closing  of  agenda  for  a  meeting  of 
the  Committee  shall  be  placed  upon  the  agenda  of  the  next  meet- 
ing, except  that  by  unanimous  consent  of  the  members  of  the  Com- 
mittee and  Managers  of  the  subscribing  Bureaus  present  at  any 
meeting  a  subject  which  has  not  been  listed  on  the  agenda  may  be 
acted  upon. 


4         NATIONAL   REFERENCE  COMMITTEE   ON    SCHEDULE  RATING. 

3.  Meetings  of  the  Committee  shall  be  attended  by  the  desig- 
nated representative,  preferably  the  chief  inspector,  of  each  sub- 
scribing bureau  whose  principal  office  is  located  within  two  hun- 
dred and  fifty  miles  of  the  place  of  meeting.    Subscribing  Bureaus 
or  Boards  whose  principal  office  may  not  be  located  within  two 
hundred  and  fifty  miles  of  the  place  of  meeting  shall  be  entitled  to 
representation  through  written  proxy.     Each  membej  insurance 
carrier  shall  file  with  the  Secretary  the  name  of  its  representative 
upon  the  Committee  and  also  the  name  of  an  alternate.    Invitation 
to  attend  all  meetings  of  the  Committee  may  be  extended  to  State 
Departments  and  hearings  may  be  granted  to  other  parties  inter- 
ested in  the  subject  of  workmen's  compensation  rate-making. 

4.  At  each  meeting  of  the  Committee  the  Chairman  shall  call  up 
each  subject  of  the  agenda  in  the  order  in  which  it  appears,  unless 
by  unanimous  consent  of  the  members  present  some  other  order  is 
deemed  desirable.     A  presentation  of  the  subject  shall  be  made  by 
the  designated  representative  of  the  Bureau  with  which  the  pro- 
posal originated.     Consideration  of  any  subject  on  which  material 
information  is  lacking  may  be  postponed  until  the  next  meeting  of 
the  Committee.     Eepresentatives  of  State  Departments,  Managers 
or  designated  representatives  of  subscribing  bureaus,  or  other  per- 
sons present  by  invitation  of  the  Committee,  shall  be  permitted  to 
participate  in  the  discussion,  but  only  carrier  members  shall  be 
entitled  to  vote.    Proposals  shall  be  deemed  adopted  when  assented 
to  by  a  vote  of  the  majority  of  the  members  present  and  voting.     A 
tie  vote  shall  be  declared  lost. 

5.  The  Secretary  shall  within  five  days  after  the  adjournment  of 
any  meeting  transmit  to  the  members  of  the  Committee  and  the 
subscribing  bureaus  a  copy  of  the  minutes  of  the  meeting.     Such 
minutes  shall  include  a  concise  statement  of  the  reasons  which 
prompted  the  conclusions  of  the  Committee. 

6.  If  the  Reference  Committee  disapproves  the  proposal  of  a 
subscribing  bureau,  the  designated  representative  of  the  bureau 
shall  present  to  the  proper  committee  of  the  bureau  the  conclusion 
of  the  Reference  Committee  and  the  Committee  shall  reconsider 
the  proposal  in  the  light  of  the  Reference  Committee's  conclusions. 
The  Committee  of  the  proposing  bureau  shall  then  have  final  juris- 
diction in  the  matter  without  further  submission  to  the  Reference 
Committee,  although  in  the  interests  of  uniformity  it  is  recom- 
mended that  the  proposal  be  resubmitted  to  the  Reference  Commit- 
tee on  Schedule  Rating  for  reconsideration.    Proposals  originating 
in  other  subscribing  bureaus  and  approved  by  the  Reference  Com- 
mittee on  second  reading,  shall  be  immediately  presented  to  the 
proper  Committee  of  each  subscribing  bureau  for  adoption. 


NATIONAL  REFERENCE  COMMITTEE  ON   SCHEDULE  RATING.      43 

VII.  Meeting  of  Committee. 

The  Committee  shall  choose  its  place  and  time  of  meeting,  but 
shall  meet  not  more  often  than  once  a  month  except  that  a  meeting 
may  be  called  at  any  time  upon  written  request  by  two  or  more 
members  of  the  Committee. 

Five  members  of  the  Committee  shall  constitute  a  quorum. 

VIII.  Expenses. 

The  expenses  of  the  Committee  shall  be  pro  rated  among  the 
bureaus  subscribing  to  this  agreement  in  proportion  to  the  net 
premiums  for  workmen's  compensation  insurance  written  by 
authorized  carriers  during  the  last  preceding  calendar  year  in  the 
state  or  states  wherein  each  such  bureau  has  primary  jurisdiction. 
No  traveling  expense  or  compensation  for  personal  service  shall  be 
charged  to  the  Committee. 

IX.  Effective  Date. 

These  articles  of  organization  shall  become  effective  when  ap- 
proved by  not  less  than  three  bureaus  or  boards.  As  new  bureaus 
or  boards  of  competent  jurisdiction  may  be  organized  such  bureaus 
shall  be  admitted  to  participation  in  the  work  of  the  Committee 
upon  subscribing  to  these  articles. 

X.  Amendments. 

These  articles  of  organization  may  be  amended  by  a  majority 
vote  of  the  Committee,  subject,  however,  to  the  assent  of  a  majority 
of  the  subscribing  bureaus  or  boards. 


APPENDIX   II. 

NATIONAL  COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

• 

ARTICLES   OP  ORGANIZATION. 

I.  Name. 

This  organization,  which  shall  be  known  as  the  National  Council 
on  Workmen's  Compensation  Insurance,  is  maintained  by  the 
workmen's  compensation  rating  bureaus  and  boards  subscribing  to 
these  articles. 

II.  Purposes. 

The  purposes  of  this  Council  are: 

(a)  To  promote  uniformity  in  the  making  of  proper  classifica- 
tions and  rating  systems  for  workmen's  compensation  insurance. 

(&)  To  promote  correctness  in  workmen's  compensation  insur- 
ance rates  and  a  consistent  relationship  between  the  rates  of  differ- 
ent states. 

(c)  To  promote  uniformity  in  the  rules  and  procedure  govern- 
ing the  application  of  classifications,  rates  and  rating  systems. 

III.  Form  of  Organization. 

The  work  of  this  organization  shall  be  carried  on  through  the 
following  committees: 

1.  Committee  of  Managers: 

This  Committee  shall  be  composed  of  managers  of  the  subscrib- 
ing bureaus  or  boards. 

It  shall  be  the  duty  of  the  Committee  of  Managers  to  elect  mem- 
bers to  serve  on  the  National  Eeference  Committee,  the  Actuarial 
Committee,  the  Engineering  Committee  and  other  auxiliary  com- 
mittees that  may  be  necessary  from  time  to  time,  to  designate  the 
chairmen  of  such  committees  and  to  assist  the  Council  in  an  ad- 
visory capacity. 

2.  The  National  Reference  Committee: 

This  Committee  shall  be  composed  of  six  insurance  carriers  en- 
gaged in  the  business  of  workmen's  compensation  insurance  as 
follows : 

Three  stock  insurance  companies, 
Two  mutual  insurance  companies, 
One  state  insurance  fund. 
44 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       45 

It  shall  be  the  duty  of  this  Committee  to  carry  out  the  purposes 
of  this  organization  as  defined  in  Article  II. 

3.  Auxiliary  Committees:  There  shall  be  two  permanent  Aux- 
iliary Committees: 

(a)  An  Engineering  Committee  which  shall  be  composed  of  six 
insurance  carriers  engaged  in  the  business  of  workmen's  compensa- 
tion insurance  as  follows: 

Three  stock  insurance  companies, 
Two  mutual  insurance  companies, 
One  state  insurance  fund. 

The  Engineering  Committee  shall  have  authority  to  act  upon  all 
proposals  for  amendments  in  the  schedule  rating  system,  except 
that  a  proposal  involving  a  change  in  any  fundamental  principle 
affecting  the  general  system  of  rate-making  or  a  general  revision 
of  the  schedule  rating  system  shall  be  submitted  to  the  National 
Eeference  Committee  for  final  action,,  and  further  that  the  Com- 
mittee of  Managers  shall  have  the  right  to  refer  to  the  National 
Eeference  Committee  any  action  of  the  Engineering  Committee. 

It  shall  be  the  duty  of  the  Engineering  Committee  to  assist  the 
National  Eeference  Committee  in  all  matters  relating  to  the  engi- 
neering problems  involved  in  the  making  of  rates. 

(&)  An  Actuarial  Committee  which  shall  be  composed  of  four 
insurance  carriers  engaged  in  the  business  of  workmen's  compensa- 
tion insurance  as  follows : 

Two  stock  insurance  companies, 
One  mutual  insurance  company, 
One  state  insurance  fund. 

The  Actuarial  Committee  shall  have  authority  to  act  upon  all 
proposals  for  amendments  in  the  experience  rating  system,  except 
that  a  proposal  involving  a  change  in  any  fundamental  principle 
affecting  the  general  system  of  rate-making  or  a  general  revision  of 
the  experience  rating  system  shall  be  submitted  to  the  National 
Eeference  Committee  for  final  action,  and  further  that  the  Com- 
mittee of  Managers  shall  have  the  right  to  refer  to  the  National 
Eeference  Committee  any  action  of  the  Actuarial  Committee. 

It  shall  be  the  duty  of  the  Actuarial  Committee  to  assist  the 
National  Eeference  Committee  in  all  actuarial  and  statistical  prob- 
lems relating  to  the  making  of  rates  and  rating  systems. 

IV.  Members  and  Officers  of  National  Reference  Committee  and 
Auxiliary  Committees. 

1.  Members  of  the  National  Eeference  Committee  and  Auxiliary 
Committees  shall  be  chosen  by  a  majority  vote  of  the  Committee 
of  Managers  present  at  any  duly  called  meeting.  The  members 
shall  be  elected  annually  and  hold  office  until  December  31st  of 
each  year,  or  until  their  successors  have  been  duly  elected  as  herein 


^46      COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

provided.  Eetiring  members  of  committees  shall  be  eligible  for 
reelection.  Vacancies  in  committees  shall  be  filled  in  the  same 
manner  as  provided  for  original  elections  and  shall  be  for  the  un- 
expired  term. 

2.  A  State  Department  having  supervision  over  workmen's  com- 
pensation rates,  elected  in  the  manner  provided  for  the  election  of 
members  of  committees  shall  be  invited  to  preside  through  its 
designated  representative  at  all  meetings  of  permanent  commit- 
tees, except  the  Committee  of  Managers.    Chairmen  of  Committees 
shall  be  elected  annually  and  hold  office  until  December  31st  of 
each  year. 

3.  Each  permanent  committee  shall  elect  one  of  the  subscribing 
bureaus  or  boards  as  secretary  to  serve  during  the  pleasure  of  the 
committee,  except  that  the  bureau  or  board  elected  to  serve  as  sec- 
retary to  the  National  Reference  Committee  shall  also  act  as  secre- 
tary to  the  Committee  of  Managers. 

V.  Duties  of  Officers. 

Chairmen  of  committees  shall  preside  at  all  meetings  except  in 
case  of  Committee  of  Managers  but  shall  not  have  the  right  to  vote. 
Secretaries  shall  keep  records  of  the  proceedings,  transmitting  to 
members  and  to  Managers  of  the  subscribing  bureaus  or  boards 
information  and  agenda  as  hereinafter  provided. 

VI.  Relations  with  Subscribing  Bureaus. 

1.  Whenever  the  proper  committee  of  a  subscribing  bureau  shall 
propose  to  create,  abolish  or  amend  any  classification,  rate,  schedule 
or  experience  rating  plan  for  workmen's  compensation  insurance, 
or  the  rules  governing  its  application,  the  Manager  of  such  bureau 
shall  immediately  transmit  to  the  Secretary  of  the  proper  commit- 
tee of  the  Council  and  to  the  Managers  of  other  subscribing  bureaus 
a  description  of  the  proposed  change  including  a  concise  statement 
of  the  reasons  therefor  and  a  summary  of  all  data  upon  which  the 
proposal  is  predicated.     Every  Manager  of  a  subscribing  bureau 
shall  immediately  upon  its  receipt  submit  such  information  to  the 
proper  committee  of  his  bureau,  and  such  committee  may,  through 
the  Manager,  make  recommendations  to  the  National  Council  as  to 
the  general  adoption  of  the  proposed  change. 

2.  No  subscribing  bureau  shall  put  into  effect  any  such  change 
until  after  the  proposed  change  shall  have  been  referred  to  the 
National  Council,  except  that  in  cases  of  urgency  a  subscribing 
bureau  may  put  into  effect  a  proposed  change  provided  that  its  ap- 
propriate committee  having  jurisdiction  has,  after  due  considera- 
tion, determined  that  such  urgency  exists.     In  any  such  case  the 
Manager  of  such  bureau  shall,  nevertheless,  advise  the  National 
Council  of  such  action  in  the  same  manner  as  herein  provided  for 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       47 

other  proposals,  so  that  the  Council  may  consider  the  advisability 
of  a  similar  change  for  other  jurisdictions. 

VII.  Meetings  of  Committees. 

1.  The  National  Eeference  Committee  shall  choose  its  place  and 
time  of  meeting  but  shall  meet  not  more  often  than  once  in  three 
months  except  that  a  meeting  may  be  called  at  any  time  by  the 
Committee  of  Managers. 

2.  Not  less  than  ten  days  before  a  meeting  of  the  National  Eef- 
erence Committee,  the  Secretary  thereof  shall  prepare  and  trans- 
mit to  all  members  of  the  Committee  an  agenda  showing  the  mat- 
ters to  be  considered  at  such  meeting  and  attach  to  such  agenda  a 
statement  of  the  recommendations  prepared  by  the  Committee  of 
Managers.    Proposals  received  by  the  Secretary  after  date  of  clos- 
ing of  agenda  for  meeting  of  the  committee  shall  be  placed  upon  the 
agenda  of  the  next  meeting,  except  that  by  unanimous  consent  of 
the  members  of  the  committee  present  at  any  meeting  a  subject 
which  has  not  been  listed  on  the  agenda  may  be  acted  upon. 

3.  Meetings  of  the  National  Eeference  Committee  shall  be  at- 
tended by  the  Manager  or  other  designated  representative  of  each 
subscribing  bureau  whose  principal  office  is  located  within  two  hun- 
dred and  fifty  miles  of  the  place  of  meeting.     Subscribing  bureaus 
or  boards  whose  principal  office  may  not  be  located  within  two 
hundred  and  fifty  miles  of  the  place  of  meeting  shall  be  entitled  to 
appoint  a  duly  authorized  representative.     Each  member  insurance 
carrier  shall  file  with  the  Secretary  the  name  of  its  representative 
upon  the  Committee  and  also  the  name  of  an  alternate.    Invitation 
to  attend  all  meetings  of  the  Committee  may  be  extended  to  State 
Departments  and  hearings  may  be  granted  to  other  parties  inter- 
ested in  the  subject  of  workmen's  compensation  rate-making. 

4.  At  each  meeting  of  the  National  Eeference  Committee  the 
Chairman  shall  call  up  the  items  on  the  agenda  in  the  order  in 
which  they  appear,  unless  by  unanimous  consent  of  the  members 
present  some  other  order  is  deemed  desirable.    A  presentation  of 
each  subject  shall  be  made  by  the  Manager  or  designated  repre- 
sentative of  the  Bureau  with  which  the  proposal  originated.    Con- 
sideration of  any  item  on  which  material  information  is  lacking 
may  be  postponed  until  the  next  meeting  of  the  Committee.    Eep- 
resentatives  of  State  Departments,  Managers  or  designated  repre- 
sentatives of  subscribing  bureaus,  and  persons  present  by  invitation 
of  the  Committee,  shall  have  the  right  to  participate  in  discussions, 
but  only  carrier  members  shall  be  entitled  to  vote.    Proposal^  shall 
be  deemed  adopted  when  assented  to  by  a  vote  of  the  majority  of 
the  members  present  and  voting.    A  tie  vote  shall  be  declared  lost. 

5.  If  the  National  Eeference  Committee  disapproves  the  pro- 
posal of  a  subscribing  bureau,  the  Manager  thereof  shall  present 
to  the  proper  committee  of  his  bureau  the  conclusions  of  the  Na- 


48       COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

tional  Reference  Committee,  and  the  committee  of  the  proposing 
bureau  shall  reconsider  the  proposal  in  the  light  of  the  National 
Reference  Committee's  conclusions.  Proposals  approved  by  the 
National  Reference  Committee,  shall  be  immediately  presented  to 
the  proper  committee  of  each  subscribing  bureau  for  adoption. 

6.  Not  less  than  thirty  days  before  a  regular  meeting  of  the 
National  Reference  Committee,,  a  meeting  of  the  Committee  of 
Managers  shall  be  held  at  which  meeting  the  proposals  submitted 
by  the  subscribing  bureaus  or  boards  shall  be  examined  and  upon 
vote  placed  upon  the  agenda  of  the  National  Reference  Committee 
with  suitable  recommendations. 

7.  The  Engineering  Committee  and  the  Actuarial  Committee 
shall  hold  meetings  as  often  as  may  be  necessary,  subject  to  call  of 
their  respective  secretaries. 

8.  The  Secretary  of  each  committee  shall  within  five  days  after 
the  adjournment  of  any  meeting  transmit  to  the  members  of  the 
committee  and  the  subscribing  bureaus  copies  of  the  minutes  of  the 
meeting.     Such  minutes  shall  include  a  concise  statement  of  the 
reasons  which  prompted  the  conclusions  of  the  committee. 

9.  At  any  meeting  of  any  committee  a  majority  of  the  members 
entitled  to  vote  shall  constitute  a  quorum. 

VIII.  General  Rate  Revision. 

The  Council  shall  conduct  when  necessary,  general  revisions  of 
the  manual  and  rating  systems.  For  the  purpose  of  such  revisions, 
and  for  this  purpose  only,  the  Committee  of  Managers  may  in  its 
discretion  add  temporarily  to  the  membership  of  the  National  Ref- 
erence Committee  and  Auxiliary  Committees. 

IX.  Expenses. 

The  expenses  of  the  Council  shall  be  pro  rated  among  the  bureaus 
and  boards  subscribing  to  this  agreement  in  proportion  to  the  net 
premiums  for  workmen's  compensation  insurance  written  by 
authorized  carriers  during  the  last  preceding  calendar  year  in  the 
state  or  states  wherein  each  such  bureau  has  primary  jurisdiction. 
No  traveling  expense  or  compensation  for  personal  service  shall 
be  charged  to  the  Council  or  any  of  its  committees. 

X.  Confidential  Character  of  Committee  Work. 

All  proceedings  and  discussions  of  the  Council  and  its  commit- 
tees shall  be  treated  as  confidential  and  no  competitive  use  thereof 
shall  be  made  by  any  member  of  any  committee.  The  vote  of  indi- 
vidual members  on  any  proposal  shall  not  be  included  in  the  pub- 
lished record  of  proceedings. 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       49 

XI.  Effective  Date. 

These  Articles  of  Organization  shall  become  effective  when  ap- 
proved by  not  less  than  four  bureaus  or  boards.  As  new  bureaus 
or  boards  of  competent  jurisdiction  may  be  organized,  such  bureaus 
shall  be  admitted  to  participation  in  the  work  of  the  Council  upon 
subscribing  to  these  Articles. 

XII.  Amendments. 

These  Articles  of  Organization  may  be  amended  by  a  majority 
vote  of  the  Committee  of  Managers  present  at  any  meeting,  sub- 
ject, however,  to  the  assent  of  not  less  than  four  of  the  subscribing 
bureaus  or  boards. 


APPENDIX   III. 
NATIONAL  COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

CONSTITUTION 
Adopted  New  York  City,  September  5,  1919. 

ARTICLE  I.  Name. 

The  name  of  this  organization  shall  be:  National  Council  on 
Workmen's  Compensation  Insurance. 

ARTICLE  II.    Objects. 

The  objects  of  the  National  Council  on  Workmen's  Compensa- 
tion Insurance  hereinafter  called  "The  Council"  shall  be:  to  co- 
operate with  rating  organizations  and  public  officials  in  all  states 
in  the  determination  of  equitable  premium  rates  for  workmen's 
compensation  insurance,  and  to  promote  a  true  public  understand- 
ing concerning  the  establishment  of  such  rates.  To  this  end  the 
Council  shall: 

1.  Collect  and  compile  experience  for  ratemaking  purposes. 

2.  Establish  classifications  for  ratemaking,  and  rules  and  proce- 
dure governing  the  application  of  same. 

3.  Establish  basic  pure  premiums  and  formulate  fundamental 
general  principles  applicable  to  all  states  for  translating  such  pure 
premiums  into  rates. 

4.  Establish  rating  plans  for  the  purpose  of  modifying  manual 
rates  on  individual  risks. 

5.  Assist  its  members  in  deciding  questions  concerning  manual 
rates,  rules,  classifications  and  rating  plans. 

6.  Encourage   and  assist  in  the   organization   of  non-partisan 
bureaus  for  rate  regulation  for  states  where  the  laws  require  or 
permit  the  organization  of  such  bureaus. 

ARTICLE  III.    Membership. 

Boards  and  bureaus  affiliated  with  the  National  Council  on 
Workmen's  Compensation  Insurance,  as  constituted  prior  to  Sep- 
tember 4,  1919,  and  any  other  bureau  having  jurisdiction  over 
workmen's  compensation  insurance  rates  or  the  application  thereof, 
shall  be  entitled  to  membership  in  the  Council  and  to  share  equally 
in  the  benefits  derived  therefrom  upon  subscribing  to  this  Consti- 
tution. Individual  carriers  shall  not  be  members  as  such,  but  by 

50 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       51 

virtue  of  their  membership  in  subscribing  boards  and  bureaus  shall 
have  the  powers  conferred  upon  them  as  specified  in  this  Consti- 
tution. 

ARTICLE  IV.   Form  of  Organization. 

To  carry  on  the  work  of  the  Council  as  defined  in  Article  II,  the 
following  committees  shall  be  elected  in  the  manner  specified  herein : 

1.  Governing  Committee:  At  a  meeting  of  insurance  carriers  at 
which  this  Constitution  is  adopted,  a  Governing  Committee  com- 
posed of  six  insurance  carriers  shall  be  constituted  as  follows:  the 
participating  carriers  and  the  'non-participating  carriers,  respec- 
tively acting  separately,  shall  each  elect  by  ballot  three  members, 
one  for  a  term  of  one  year,  one  for  two  years,  and  one  for  three 
years.     Thereafter  upon  the  expiration  of  the  respective  terms, 
members  of  the  Governing  Committee  shall  be  elected  in  the  same 
manner  for  a  term  of  three  years.     "Participating  carriers"  are 
defined  as  stock  corporations  issuing  dividend  policies,  mutual  cor- 
porations, state  funds,  and  reciprocal  interinsurers.    "  Non-partici- 
pating carriers"  are  defined  as  stock  corporations  issuing  non- 
dividend  policies. 

(a)  Vacancies  shall  be  filled  in  similar  manner  by  the  respec- 
tive remaining  members  of  the  Governing  Committee.  Members 
elected  to  fill  such  vacancies  shall  serve  until  the  next  annual 
meeting. 

(&)  The  Governing  Committee  shall  appoint  a  general  manager 
and  fix  his  salary.  The  affirmative  vote  of  not  less  than  five  mem- 
bers shall  be  necessary  for  the  election  of  a  general  manager  and 
the  determination  of  his  salary. 

(c)  The  Governing  Committee  shall  have  control  and  super- 
vision over  the  finances  of  the  Council  with  authority  to  determine 
and  approve  appropriations  for  each  quarterly  budget,  and  authority 
to  determine  and  approve  the  assessments  to  be  levied  upon  the 
members  of  the  Council. 

2.  Committee  of  Managers:  The  General  Manager  of  the  Council 
and  the  manager  of  each  board  and  bureau  affiliated  with  the 
Council  shall  be  members  of  this  Committee. 

(a)   The  Committee  of  Managers  shall  elect  its  own  chairman. 

(&)  It  shall  be  the  duty  of  this  committee  to  elect  members  to 
serve  on  the  General  Rating  Committee.,  the  Actuarial  Committee 
and  the  Engineering  Committee,  and  designate  the  chairman  of 
such  committees,  assist  the  Council  in  an  advisory  capacity  and 
further  to  approve  or  disapprove  applications  for  membership  in 
the  Council. 

3.  General  Rating  Committee:  This  committee  shall  be  composed 
of    three    participating    and    three    non-participating    insurance 
carriers. 

(a)  It  shall  be  the  duty  of  this  committee  to  prepare  a  manual 


j52       COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

of  classifications  and  rules,  establish  basic  pure  premiums  and  sub- 
sequent amendments  in  such  manual  and  basic  pure  premium,  and 
approve  rating  plan  determined  upon  by  the  Actuarial  and  Engi- 
neering Committees. 

(6)  The  Committee  of  Managers  shall  have  the  right  to  refer 
to  the  General  Eating  Committee  any  action  of  the  Actuarial  or 
Engineering  Committees. 

(c)  If  deemed  expedient  the  Committee  of  Managers  *may,  in  its 
discretion,  add  temporarily  to  the  membership  of  the  General 
Eating  Committee;  members  thus  added  shall  be  equally  divided 
between  participating  and  non-participating  carriers. 

4.  Actuarial  Committee:  This  committee  shall  be  composed  of 
three  participating  and  three  non-participating  insurance  carriers. 

(a)  It  shall  be  the  duty  of  the  Actuarial  Committee  to  advise 
the  General  Eating  Committee  on  all  actuarial  and  statistical 
problems  relating  to  the  combination  of  experience,  the  establish- 
ment of  basic  pure  premiums,  the  formulation  of  fundamental 
principles  for  the  conversion  of  pure  premiums  into  rates  and  the 
establishment  of  rating  plans. 

(&)  This  committee  shall  have  authority  to  act  on  all  proposals 
for  amendments  in  the  experience  rating  system. 

(c)  Proposals  involving  a  change  in  any  fundamental  principles 
affecting  the  general  system  of  ratemaking,  or  a  general  revision  of 
the  experience  rating  system,  shall  be  submitted  to  the  General 
Eating  Committee  for  final  action. 

5.  Engineering  Committee:  This  committee  shall  be  composed  of 
three  participating  and  three  non-participating  insurance  carriers. 

(a)  The  Engineering  Committee  shall  have  authority  to  act 
upon  all  proposals  for  amendments  in  the  schedule  rating  system. 

(&)  Proposals  involving  a  change  in  any  fundamental  principle 
affecting  the  general  system  of  ratemaking,  or  a  general  revision  in 
the  schedule  rating  system,  shall  be  referred  to  the  General  Eating 
Committee  for  final  action. 

ARTICLE  V.    Members  and  Officers  of  General  Rating,  Actuarial 
and  Engineering  Committees. 

1.  Members  of  the  General  Eating,  Actuarial  and  Engineering 
Committees  shall  be  elected  by  a  majority  vote  of  the  Committee  of 
Managers  present  at  any. duly  called  meeting.  Such  election,  how- 
ever, shall  be  subject  to  the  approval  of  the  Governing  Committee. 
The  members  shall  be  elected  annually  and  hold  office  until  De- 
cember 31st  of  each  year  or  until  their  successors  have  been  duly 
elected  as  herein  provided.  Eetiring  members  of  committees  shall 
be  eligible  for  re-election.  Interim  vacancies  in  committees  shall 
be  filled  in  the  same  manner  as  provided  for  original  elections,  and 
members  elected  to  fill  such  vacancies  shall  serve  for  the  unexpired 
term. 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       53 

2.  State  Departments  having  supervision  over  workmen's  com- 
pensation rates,  selected  in  the  manner  provided  for  the  election  of 
members  of  committees,  shall  be  invited  to  preside,  through  desig- 
nated representatives  at  all  meetings  of  the  General  Eating,  Actu- 
arial and  Engineering  Committees. 

ARTICLE  VI.    General  Manager. 

1.  The  General  Manager  .shall,  under  the  supervision  of  the 
Governing  Committee,  have  general  control  of  all  the  employees 
of  the  Council  and  of  all  the  affairs  of  the  Council  not  herein  dele- 
gated to  committees. 

2.  He  shall  be  a  member  ex-officio  of  all  committees,  preside  at 
the  meetings  of  the  Council  and  the  Governing  Committee,  but 
shall  not  have  the  right  to  vote  except  as  provided  in  Article  X. 

3.  He  shall  be  responsible  for  all  property  of  the  Council,  re- 
ceive and  carefully  keep  all  moneys  of  the  Council  and  disburse  the 
same  only  for  the  business  of  the  Council,  accounting  to  the  Gov- 
erning Committee  for  all  such  disbursements.     He  shall  make  no 
disbursements  in  excess  of  an  amount  to  be  fixed  by  the  Governing 
Committee  without  the  written  approval  of  a  member  of  the  Gov- 
erning Committee. 

4.  He  shall  have  the  power  to  sign  and  endorse  in  the  name  of 
and  on  behalf  of  the  Council  in  the  transaction  of  its  business,  but 
not  otherwise,  checks,  drafts,  notes  and  bills  of  exchange,  subject 
to  such  counter-signature  as  the  Governing  Committee  may  de- 
termine. 

5.  He  shall  give  a  corporate  surety  bond  at  the  cost  of  the  Coun- 
cil in  such  sum  as  the  Governing  Committee  may  determine  for  the 
faithful  and  honest  discharge  of  his  duties,  and  for  the  faithful  and 
honest  receipt,   custody  and  disbursement   of  the  funds   of   the 
Council. 

6.  He  shall  assemble  and  submit  experience  and  such  statistical 
data  as  may  be  required  by  the  General  Eating,  Actuarial  and  En- 
gineering Committees  of  the  Council,  and  conduct  such  other  in- 
vestigations as  may  be  directed  by  such  committees. 

7.  He  or  his  nominee  shall  serve  as  Secretary  to  the  Council  and 
to  all  its  committees  and  keep  a  record  of  all  proceedings.    When- 
ever it  is  determined  that  advices  of  committee  proceedings  shall  be 
sent  to  members  of  committees,  such  advices  shall  also  be  trans- 
mitted simultaneously  to  members  and  insurance  carriers  affiliated 
with  the  Council. 

8.  He  shall  furnish  experience  upon  request  to  any  subscribing 
board  or  bureau  and  to  any  state  department  having  jurisdiction 
over  workmen's  compensation  rates  in  such  form  and  detail  as  may 
be  prescribed  by  the  Actuarial  Committee. 


64      COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

ARTICLE  VII.   Relations  With  Subscribing  Bureaus. 

1.  Each  subscribing  board  or  bureau  shall  require  its  members  to 
submit  upon  call  their  statistical  experience  direct  to  the  Council 
in  such  detail  and  form  as  may  be  prescribed  by  the  Actuarial 
Committee. 

2.  Whenever  the  proper  committee  of  a  subscribing  board  or 
bureau  shall  propose  to  create  any  classification  or  to 'abolish  or 
amend  any  classification,  schedule  or  experience  rating  plan  adopted 
by  the  Council  or  the  rules  governing  the  application  thereof,  the 
Manager  of  such  board  or  bureau  shall  immediately  transmit  to  the 
General  Manager  of  the  Council  a  description  of  the  proposed 
change  including  a  concise  statement  of  the  reasons  therefor,  and 
a  summary  of  all  data  upon  which  the  proposal  is  predicated. 

3.  Whenever  the  proper  committee  of  a  subscribing  board  or 
bureau  shall  propose  to  create  or  amend  the  rate  for  any  classifica- 
tion the  Manager  of  such  board  or  bureau  shall  immediately  trans- 
mit to  the  General  Manager  of  the  Council  a  full  description  of  the 
proposal  including  a  concise  statement  of  the  reasons  therefor,  and 
a  summary  of  all  data  upon  which  the  proposal  may  be  predicated. 

4.  No  subscribing  board  or  bureau  shall  put  into  effect  any  pro- 
posal until  after  the  same  shall  have  been  referred  to  the  Council 
and  a  reasonable  time  allowed  within  which  the  Council  may  give 
consideration  to  the  proposal. 

5.  Within  a  reasonable  time  the  General  Manager  shall  furnish 
the  conclusions  of  the  Council  as  to  the  proposal  supplemented  by 
such  statistical  data  as  the  Council  may  have  in  its  possession  or 
may  be  able  to  secure  affecting  the  proposal. 

6.  If  the   Council   disapproves  the  proposal  of  a   subscribing 
board  or  bureau,  the  Manager  thereof  shall  present  to  the  proper 
committee  of  his  board  or  bureau  the  conclusions  of  the  Council 
and  the  committee  of  the  proposing  board  or  bureau  shall  recon- 
sider the  proposal  in  the  light  of  the  Council's  conclusions,  pro- 
vided that  thereupon,  if  the  committee  of  the  subscribing  board 
or  bureau  having  jurisdiction  over  such  matters  deems  it  necessary 
that  the  change  be  made,  notice  prior  to  its  publication  shall  be 
promptly  filed  with  the  Council. 

7.  All  actions  of  the  Council  either  approving  or  disapproving 
proposals  of  subscribing  boards  or  bureaus,  shall  be  immediately 
transmitted  to  all  subscribing  boards  and  bureaus,  and  all  pro- 
posals approved  by  the  Council  shall  be  presented  to  the  proper 
committee  of  each  subscribing  board  or  bureau  for  adoption. 

8.  The  Council  may  furnish  experience  data  or  other  informa- 
tion to  insurance  carriers  not  members  of  any  subscribing  board 
or  bureau,  the  charge  therefor  to  be  determined  by  the  Governing 
Committee. 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSUEANCE.       55 

ARTICLE  VIII.   Annual  and  Special  Meetings. 

1.  The  first  regular  meeting  of  the  Council  shall  be  held  in  the 
City  of  New  York  on  Thursday,  September  4,  1919.     Thereafter 
the  annual  meeting  of  the  Council  shall  be  held  at  the  offices  of  the 
Council  or  at  such  other  place  as  the  Governing  Committee  may 
determine  on  the  first  Thursday  of  September.    In  case  the  annual 
meeting  for  any  year  shall  not  be  duly  called  or  held,  the  Governing 
Committee  shall  cause  a  special  meeting  to  be  held  as  soon  as  may 
be  thereafter,  in  lieu  of  and  for  the  purpose  of  such  annual  meeting, 
and  all  proceedings  at  such  special  meeting  shall  have  the  same 
force  as  if  taken  at  the  regular  annual  meeting. 

2.  Special  meetings  of  the  Council  shall  be  called  at  any  time  at 
the  discretion  of  the  General  Manager  or  upon  the  written  request 
of  a  majority  of  the  Governing  Committee. 

3.  Notices  of  annual  and  special  meetings  shall  be  given  by  the 
General  Manager  or,  in  case  of  his  absence  or  inability  to  act,  by 
such  person  as  the  Governing  Committee  shall  appoint,  by  mailing 
at  least  fifteen  days  before  the  date  fixed  for  such  meeting,  and 
addressed  to  each  insurance  carrier,  to  all  subscribing  boards  and 
bureaus,  and  state  departments  entitled  to  participate  in  such  meet- 
ings, a  written  or  printed  notice  stating  the  place,  day,  hour  and 
purpose  of  such  meeting. 

4.  Every  insurance  carrier  which  is  a  member  of  a  board  or 
bureau  affiliated  with  the  Council,  every  insurance  carrier  not  a 
member  of  such  a  board  or  bureau  which  agrees  to  file  on  demand 
experience  data  and  other  information  required  by  the  Council, 
managers  of  boards  or  bureaus  affiliated  with  the  Council  and  duly 
authorized  representatives  of  state  departments  having  supervision 
over  workmen's  compensation  rates  shall  be  entitled  to  participate 
in  all  annual  and  special  meetings  of  the  Council,  but  only  insur- 
ance carriers  which  are  members  of  subscribing  boards  or  bureaus 
shall  have  the  right  to  vote  at  such  meetings. 

5.  At  any  annual  or  special  meeting  of  the  Council  one-third  of 
the  insurance  carriers  entitled  to  vote  shall  constitute  a  quorum. 

6.  The  presiding  officer  at  such  meeting  shall  have  the  power 
to  cast  the  deciding  vote  in  case  of  a  tie. 

ARTICLE  IX.   Meeting  of  Committees. 

1.  Committees  of  the  Council  shall  meet  at  the  offices  of  the 
Council  when  necessary.  At  any  meeting  of  any  committee  a 
majority  of  the  members  entitled  to  vote  shall  constitute  a  quorum. 
Not  less  than  ten  days  before  a  meeting  of  the  General  Rating  Com;- 
mittee  the  General  Manager  shall  prepare  and  transmit  to  members 
of  the  Committee,  subscribing  boards  and  bureaus,  state  depart- 
ments and  insurance  carriers  affiliated  with  the  Council  an  agenda 
showing  matters  to  be  considered  at  such  meeting.  Proposals  re- 


56      COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

ceived  by  the  General  Manager  after  the  date  of  closing  of  agenda 
shall  be  placed  upon  the  agenda  for  the  next  meeting,  except  that  a 
subject  not  listed  on  the  agenda  may  be  acted  upon  by  unanimous 
consent  of  the  members  of  the  Committee  present  at  any  meeting. 

2.  An  agenda  for  meetings  of  other  committees  shall  be  prepared 
and  transmitted  by  the  General  Manager  not  less  than  five  days 
before  the  appointed  date  for  such  meeting. 

3.  Meetings  of  committees  may  be  attended  by  the  Manager  or 
other  duly  authorized  representative  of  each  subscribing  board  or 
bureau. 

4.  Each  carrier  appointed  to  serve  on  committees  shall  file  with 
the  General  Manager  the  name  of  its  representative  and  also  the 
name  of  an  alternate.     Invitations  to  attend  all  meetings  of  com- 
mittees shall  be  extended  to  state  departments  and  hearings  may  be 
granted  to  other  parties  interested  in  the  subject  of  workmen's  com- 
pensation insurance  rates. 

5.  Eepresentatives  of  state  departments,  managers  or  duly  author- 
ized representatives  of  subscribing  boards  or  bureaus,  and  persons 
present  by  invitation  of  the  Council,  shall  have  the  right  to  partici- 
pate in  discussions,  but  only  members  of  committees  shall  be  entitled 
to  vote. 

ARTICLE  X.    Voting  Power. 

1.  The  General  Manager  shall  have  the  power  to  cast  the  decid- 
ing vote  in  case  of  a  tie  in  the  Governing  Committee  on  all  matters 
except  those  affecting  the  appointment  of  a  General  Manager  and 
the  determination  of  his  salary. 

2.  In  the  case  of  a  tie  vote  in  the  Committee  of  Managers  the 
Chairman  shall  cast  the  deciding  vote. 

3.  In  the  case  of  a  tie  vote  in  the  Actuarial  and  Engineering 
Committees,  the  matter  shall  be  referred  for  final  action  to  the 
General  Eating  Committee. 

4.  In  the  case  of  a  tie  vote  in  the  General  Eating  Committee,  the 
item  shall  go  over  to  the  following  meeting,  and  if  at  such  meeting 
the  vote  remains  tied,  the  item  shall  be  referred  for  final  action  to 
the  item  shall  be  referred  for  final  action  to  the  Committee  of 
Managers. 

ARTICLE  XI. — Maintenance  of  Council. 

1.  The  Governing  Committee  shall  quarterly,  as  of  the  first  days 
of  January,  April,  July  and  October,  estimate  the  expenses  of  the 
Council  for  the  respective  ensuing  quarters  and  levy  the  same  upon 
subscribing  boards  and  bureaus  in  proportion  to  the  workmen's 
compensation  premium  writings  under  the  jurisdiction  of  each 
during  the  preceding  year  converted  to  a  common  basic  premium 
level.  As  soon  after  December  31st  as  possible  the  contributions  of 
each  board  or  bureau  for  the  preceding  calendar  year  shall  be  ad- 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.      57 

justed  according  to  the  completed  figures  for  the  year  modified  in 
accordance  with  the  foregoing  provision.  In  states  where  insur- 
ance carriers  are  not  members  of  a  subscribing  board  or  bureau  the 
assessment  shall  be  levied  directly  upon  such  carriers  and  paid 
directly  to  the  Council. 

ARTICLE  XII.    Withdrawals. 

1.  A  board  or  bureau  may  withdraw  from  membership  by  giving 
not  less  than  ninety  days'  notice  in  writing  to  the  General  Manager 
prior  to  the  effective  date  of  withdrawal,  but  shall  continue  liable 
for  its  share  of  the  expenses  which  have  accrued  or  thereafter  may 
be  determined  to  have  accrued  prior  to  the  effective  date  of  such 
withdrawal. 

ARTICLE  XIII.   Effective  Date. 

1.  This  Constitution  shall  become  effective  as  of  the  date  of  the 
general  meeting  called  for  the  purpose  of  its  adoption. 

ARTICLE  XIV.   Amendments. 

1.  This  Constitution  may  be  altered  or  changed  by  a  majority 
vote  at  any  annual  meeting  of  the  Council  or  at  any  special  meeting 
called  for  the  purpose  but  no  amendment  shall  be  acted  upon  unless 
fifteen  days'  written  notice  of  the  proposed  alteration  or  change 
shall  have  been  given  to  those  entitled  to  participate  in  such  annual 
or  special  meeting,  and  shall  not  take  effect  until  written  notice 
shall  have  been  received  by  the  General  Manager  of  ratification  by  a 
majority  of  subscribing  boards  or  bureaus. 


APPENDIX   IV. 
NATIONAL  COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE. 

COMMITTEES 
As  of  September  1,  1920. 

Governing  Committee. 

Maryland  Casualty  Co.  Michigan  Mutual  Liability  Co.  Royal 
Indemnity  Co.  State  Insurance  Fund  of  N.  Y.  United  States 
Casualty  Co.  Utica  Mutual  Insurance  Co. 

Committee  of  Managers — Subscribing  Boards  and  Bureaus. 

ALABAMA. 

Compensation  Rating  and  Inspection  Bureau  of  Alabama.    Mont- 
gomery.   Mr.  W.  W.  Watkinson,  Manager. 

CALIFORNIA. 

California  Inspection  Rating  Bureau.     San  Francisco.  Mr.  W. 
A.  Chowen,  Manager. 

DELAWARE. 

Delaware  Compensation  Rating  and  Inspection  Bureau.     Phila- 
delphia, Pa.     Mr.  Gregory  C.  Kelly,  General  Manager. 

MASSACHUSETTS. 

Massachusetts  Rating  and  Inspection  Bureau.     Boston.     Mr.  W. 
N.  Magoun,  General  Manager. 

NEW  JERSEY. 

Compensation  Rating  and  Inspection  Bureau  of  New  Jersey. 
Newark.     Mr.  W.  W.  Greene,  Chairman. 

NEW  YORK. 

Compensation  Inspection  Rating  Board.    New  York.    Mr.  L.  S. 
Senior,  Manager. 

PENNSYLVANIA. 

Pennsylvania    Compensation    Rating    and    Inspection    Bureau 
Philadelphia.    Mr.  Gregory  C.  Kelly,  General  Manager. 

TENNESSEE. 

Tennessee  Compensation  Rating  and  Inspection  Bureau.    Nash- 
ville.    Mr.  Edward  E.  Gould,  Manager. 

58 


COUNCIL  ON  WORKMEN'S  COMPENSATION  INSURANCE.       69 

VIRGINIA. 

Workmen's  Compensation  Inspection  Bating  Bureau  of  Virginia. 
Eichmond.    Mr.  A.  E.  Lawrence,  Manager. 

WISCONSIN. 

Wisconsin  Compensation  Eating  and  Inspection  Bureau.     Mil- 
waukee.   Mr.  George  F.  Haydon,  General  Manager. 

National  Association  of  Mutual  Casualty  Companies.    New  York. 
Mr.  E.  S.  Cogswell,  General  Manager. 

National  Workmen's  Compensation  Service  Bureau.    New  York. 
Mr.  Albert  W.  Whitney,  General  Manager. 

Actuarial  Committee. 

Employers  Mutual  Liability  Insurance  Co.  Globe  Indemnity 
Co.  Liberty  Mutual  Insurance  Co.  Eoyal  Indemnity  Co.  State 
Insurance  Fund  of  New  York.  Travelers  Insurance  Co. 

General  Eating  Committee. 

American  Mutual  Liability  Insurance  Co.  *Casualty  Eeciprocal 
Exchange.  Employers'  Liability  Assurance  Corp.,  Ltd.  *Liberty 
Mutual  Insurance  Co.  Maryland  Casualty  Co.  Ocean  Accident 
and  Guarantee  Corp.,  Ltd.  Texas  Employers'  Insurance  Associa- 
tion. *  Travelers  Insurance  Co.  *United  States  Casualty  Co. 
Utica  Mutual  Insurance  Co. 

Engineering  Committee. 

Aetna  Life  Insurance  Co.  Continental  Casualty  Co.  Fidelity 
and  Casualty  Co.  Integrity  Mutual  Casualty  Co.  State  Insurance 
Fund  of  New  York.  Utilities  Mutual  Insurance  Co. 

Coal  Mine  Committee. 

American  Indemnity  Exchange.  American  Mine  Owners  Mu- 
tual, Inc.  Integrity  Mutual  Casualty  Co.  Maryland  Casualty 
Co.  Ocean  Accident  and  Guarantee  Corp.,  Ltd.  Travelers  In- 
surance Co. 

*  Temporary  member. 


APPENDIX   V. 
MARYLAND  COMPENSATION  KATE  SHEET. 

Issued  June  1,  1920. 
MARYLAND. 

BATE  SHEET. 

THE  COMPENSATION  KATES  and  MINIMUM  PREMIUMS  for  this  State  are  shown 
below  opposite  the  CODE  NUMBERS  of  the  various  classifications. 


Code 
No. 

Rate 

Mln. 
Prem. 

Code 
No. 

Rate 

Min. 
Prem. 

Code 
No. 

Rate 

Min. 
Prem. 

Code 
No.. 

Rate 

Mln. 
Prem. 

0004 

.46 

13. 

1602 

4.94 

57. 

2063 

1.22 

20. 

2301 

.20 

10. 

0005 

.78 

16. 

1620 

4.94 

57. 

2065 

1.22 

20. 

2302 

.20 

10. 

0006 

1.02 

25. 

1621 

4.94 

57. 

2067 

1.22 

20. 

2303 

.20 

10. 

0008 

.46 

13. 

1622 

4.94 

57. 

2081 

2.18 

30. 

2320 

.56 

14. 

0050 

5.05 

59. 

1623 

4.94 

57. 

2090 

1.12 

19. 

2348 

.80 

16. 

0100 

2.48 

33. 

1640 

3.71 

45. 

2091 

1.12 

19. 

2349 

1.42 

22. 

0101 

2.48 

33. 

1654 

4.94 

57. 

2092 

1.37 

22. 

2350 

.80 

16. 

0251 

1.34 

21. 

1701 

2.66 

35. 

2101 

1.17 

20. 

2351 

.56 

14. 

0301 

1.54 

23. 

1703 

2.35 

32. 

2102 

.92 

17. 

2361 

.20 

10. 

0302 

2.46 

33. 

1710 

4.18 

50. 

2105 

.57 

14. 

2362 

.38 

12. 

0400 

1.62 

24. 

1741 

2.35 

32. 

2110 

1.42 

22. 

2380 

.34 

11. 

0401 

4.36 

52. 

1742 

2.35 

32. 

2111 

1.04 

18. 

2382 

.34 

11. 

*1004 

1743 

2.35 

32. 

2112 

.78 

16. 

2383 

.34 

11. 

*1005 

1744 

2.35 

32. 

2113 

.87 

17. 

2384 

.34 

11. 

1102 

3.64 

44. 

1745 

.74 

15. 

2114 

.74 

15. 

2386 

.32 

11. 

1120 

6.07 

69. 

1748 

.95 

18. 

2121 

1.62 

24. 

2387 

.34 

11. 

1121 

6.07 

69. 

1750 

2.19 

30. 

2125 

1.53 

23. 

2388 

.32 

11. 

1154 

8.26 

91. 

1802 

1.45 

23. 

2130 

2.28 

31. 

2390 

.34 

11. 

1164 

4.76 

56. 

1803 

1.45 

23. 

2143 

1.43 

22. 

2402 

.66 

15. 

1852 

1.46 

23. 

2150 

2.57 

34. 

2410 

1.77 

26. 

1165 

4.76 

56. 

1853 

.74 

15. 

2161 

3.13 

39. 

2413 

.98 

18. 

1200 

3.99 

48. 

1859 

.85 

17. 

2165 

1.43 

22. 

2415 

.98 

18. 

1201 

6.38 

72. 

1860 

.93 

17. 

2173 

.48 

13. 

2416 

.62 

14. 

1208 

4.94 

57. 

1924 

2.21 

30. 

2174 

.49 

13. 

2417 

.82 

16. 

1217 

4.90 

57. 

2000 

1.44 

22. 

2175 

.48 

13. 

2501 

.22 

10. 

1301 

1.50 

23. 

2001 

1.44 

22. 

2176 

.15 

10. 

2502 

.22 

10. 

1321 

3.66 

45. 

2002 

3.10 

39. 

2210 

4.35 

52. 

2503 

.21 

10. 

1410 

.87 

17. 

2014 

1.65 

25. 

2211 

1.89 

27. 

2520 

.22 

10. 

1413 

1.62 

24. 

2015 

1.44 

22. 

2216 

3.41 

42. 

2521 

.22 

10. 

1420 

3.99 

48. 

2016 

1.44 

22. 

2220 

.77 

16. 

2530 

.32 

11. 

1421 

5.18 

60. 

2020 

1.26 

21. 

2222 

.56 

14. 

2531 

.20 

10. 

1438 

3.07 

39. 

2021 

1.26 

21. 

2260 

1.68 

25. 

2532 

.19 

10. 

1439 

2.95 

38. 

2030 

2.40 

32. 

2263 

1.34 

21. 

2533 

.23 

10. 

1452 

3.55 

44. 

2040 

1.28 

21. 

2264 

1.32 

21. 

2534 

.20 

10. 

1463 

1.74 

25. 

2041 

.82 

16. 

2269 

3.41 

42. 

2535 

.22 

10. 

1465 

2.19 

30. 

2042 

.82 

16. 

2280 

1.13 

19. 

2536 

.32 

11. 

*1469 

2045 

.82 

16. 

2286 

.57 

14. 

2551 

.22 

10. 

1470 

2.28 

31. 

2054 

.58 

14. 

2288 

2.37 

32. 

2552 

.20 

10. 

1471 

2.92 

37. 

2061 

1.22 

20. 

2291 

.57 

14. 

2553 

.22 

10. 

1472 

1.98 

28. 

2062 

1.22 

20. 

2300 

.39 

12. 

2554 

.22 

10. 

*  See  Coal  Mining  Manual. 

Note:  There  are  seven  rate  sheets  for  Maryland.     Only  one  is  reproduced 
as  they  are  all  similar. 

60 


3632 


APPENDIX   VI. 

EXAMPLE  OF  REPORT  ON  SCHEDULE  Z. 

PART  1 
NEW  YORK  SCHEDULE  Z-1919 

POLICY  YEAR   1916 
CLASSIFICATION  EXPERIENCE 


carriers  combined  . 


Manual  classification 

Machine  Shops  -  without  foundry. 


Manual  Rate 


COVERAGE 

EAR(DoE,?a»%R)ou- 

EARNED  PREMIUM 
(Dollar*  only) 

A 

Excluding  medical 

1,863,000 

16,237 

B 

= 

C 

Including  medical 

32,752,000 

358,429 

Total 

34^615,000 

374,666 

LOSS  EXHIBIT 


NATURE  OF  INJURY 

NO.  OF 

CLAIMS 

(1) 

PAID 

(Dollar*  only) 

(2) 

OUTSTANDING 

(Dollar*  only) 

(3) 

TOTAL  INCURRED 
(Dollar.  onW 

(4) 

D 
E 

Death 

16 

66,907 

Permanent  totaf  disability 

F 

Permanent  partial  disability 

(Ditmembtrment,  loti  of  ute,  etc.) 

269 

142,703 

G 

Temporary  disability 

(Total  and  partial) 

1767 

99,254 

H 

Indeterminate 

J 

Medical 



66,477 

K 

Total 

2052 

375,341 

4-17-19-52,000  (14-4155) 


61 


APPENDIX   VII. 

TABLE  OF  AVERAGE  VALUES  FOR  CONVERTING  "D  AND  P.  T.  D." 

LOSSES. 

I_$3500.00.— 

Agriculture. 

Wood. 

Contracting,  not  erection. 

Care,  custody  and  maintenance. 

Miscellaneous  occupations. 
II— $3500.00.— 

Food  and  tobacco. 

Textiles. 

Clothing. 

Laundries. 

Leather. 

Paper  goods. 

Fine  machines  and  instruments. 

Commercial  enterprises. 

Clerical  and  professional. 
Ill— $4400.00.— 

Eubber,  composition,  bone,  etc. 

Paper  and  pulp. 

Printing. 

Metal  forming. 

Machine  shops. 

Vehicles. 

Stone  products. 

Clay  products. 

Glass  and  glass  products. 

Chemicals. 

Miscellaneous  manufacturing. 
IV— $5300.00.— 

Mining. 

Metallurgy. 

Quarrying,  stone  crushing,  etc. 

Erection — metal. 

Erection — not  metal. 

Ship  building. 

Eailroad  Operation. 

Public  utilities — not  railroad  operation 
V.— $4400.00.— 

Garage  and  trucking. 
VI— $1900.00.— 

Vessel  operation. 
VIII.— $2300.00.— 

Stevedoring  and  freight  handling. 
62 


APPENDIX   VIII. 


WORKING  SHEET  FOR  CALCULATION  OF  THE  ILLINOIS  CONVERSION 
FACTOR  FOR  "ALL  OTHER"  LOSSES,  GROUP  I. 


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63 


APPENDIX  IX. 
TABLE  or  CONVERSION  FACTORS  USED  IN  THE  1920  REVISION. 


State. 

Group  I. 

Group  II. 

Group  III. 

All  Other. 

Med. 

All  Other. 

Med. 

All  Other. 

Med. 

California  .... 
Colorado  

.835 

2.837 
2.902 
1.814 
1.682 
2.334 
1.294 
1.210 
1.652 
3.326 
3.493 
1.503 
2.204 
1.442 
3.675 
1.744 
2.525 

1.022 
2.514 
3.714 
2.894 

2.047 
3.222 
2.718 
1.535 

.360 
1.593 
.780 
.760 
.944 
1.156 
1.479 
.841 
.726 
1.460 
1.302 
.964 
1.158 
.740 
1.322 
.795 
1.742 

'.827 
1.136 
2.148 
1.043 

1.124 
1.002 

1.438 
.589 

1.355 
3.300 
2.919 
1.712 
1.754 
1.873 
1.337 
1.541 
1.939 
2.527 
3.042 
1.850 
2.193 
1.605 
3.675 
1.589 
2.543 

1.254 
2.098 
3.372 

2.894 

1.255 
3.222 
2.718 
1.799 

.549 
1.090 
.904 
.855 
1.075 
.995 
1.700 
.796 
.774 
1.173 
1.273 
1.090 
1.143 
.844 
1.322 
.651 
1.639 

1.433 

3.300 
1.928 
2.040 
1.767 
2.692 
1.337 
1.836 
2.539 
2.113 
3.522 
1.665 
2.783 
1.846 
3.675 
1.589 
2.089 

.477 
1.090 
.588 
.723 
1.039 
.983 
1.700 
.761 
.770 
1.552 
1.214 
.984 
1.116 
.756 
1.322 
.651 
1.465 

Connecticut.  . 
Illinois 

Indiana 

Iowa  

Kansas  
Kentucky  .... 
Louisiana  .... 
Maine 

Maryland  .... 
Massachusetts 
Michigan  
Minnesota  
Montana  
Nebraska.  .  .  . 
New  Jersey... 
New  Mexico  .  . 
New  York.  .  .  . 
Oklahoma.  .  .  . 
Pennsylvania  . 
Rhode  Island  . 
South  Dakota 
Texas  
Utah  
Vermont.  .  . 

.936 
.708 
1.663 
1.043 

1.302 
2.098 
3.019 
2.894 

.866 
.708 
1.715 
1.043 

.746 
1.002 
1.438 
.819 

1.768 
3.222 
2.718 
1.806 

.783 
1.002 
1.438 
.704 

Wisconsin  .... 

64 


APPENDIX  X. 

AGGREGATE  EXPERIENCE  USED  IN  1920  EEVISION — BY  STATES. 


wo«KMErs  COMPENSATION  EXPERIENCE  GRAJTD  SUMMARY  -  BY  STATES 

tfMPILEO  IN  1919 

I 

j 

: 

o 

00 

co 

CO 
00 

CM 
O 

8 

CO 

00 

cn 

O 

CM 
CO 

S 

S 

tO 

cn 

rH 
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APPENDIX   X— B. 

AGGREGATE  EXPERIENCE  USED  IN  1920  REVISION — BY  SCHEDULES. 


SI 
ii 


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66 


APPENDIX   XI. 

WORKING  SHEET  ILLUSTRATING  THE  TRANSLATION  FROM  BASIC 
PURE  PREMIUMS  TO  STATE  PURE  PREMIUMS. 


^  H 

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II 


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67 


APPENDIX   XII. 


AMERICAN  ACCIDENT  TABLE. 

General  Distribution: 

Fatal  ,776 

Permanent   Total    63 

Permanent  Partial   3,855 

Temporary  Total    95,306 

100,000 
Duration  of  Temporary  Total  Disability. 


Temporary  Total. 

Permanent  Partial. 

Duration. 

No.  of  Cases. 

Duration. 

No.  of  Cases. 

1  day 

8,815 
8,079 
7,276 
6,009 
5,250 
4,602 
4,813 
3,361 
3,071 
2,790 
2,370 
2,050 
1,866 
2,188 
10,916 
6,264 
4,342 
2,671 
1,921 
1,297 
1,021 
796 
549 
457 
355 
302 
234 
191 
162 
130 
109 
103 
89 
78 
69 
56 
45 
609 

1  week  or  less 

210 
174 
275 
368 
387 
330 
278 
228 
196 
169 
143 
124 
107 
93 
72 
60 
52 
49 
46 
42 
40 
38 
35 
34 
32 
30 
80 
53 
40 
29 
22 
19 

3,855 

2  davs 

1-2    weeks  
2-3               
3^               

^aays. 

4     "    . 

5     "      

4-5 

6     "    

5-6 

7     "    

6-7 

8     "    
9     " 

7-8               
8-9              
9-10 

10     " 

11     " 

10-11 

12     "      

11-12 

13     "    

12-13                 .    ... 

14     "    

13-14             

2  to    3  weeks  
3  "    4      " 

14-15             
15-16 

4  "    5      "     
5  "    6      " 

16-17 

17-18                  .... 

6  "    7      " 

18-19            
19-20 

7  "    8      " 

8  "    9      " 

20-21 

9  "  10      "     

21-22             
22-23            

10  "  11      "     
11  "  12      " 
12  "  13      "     

23-24             
24-25             

13  "  14      "     
14  "  15      "     

25-26             
6  to    7  months  .... 
7  "    8       "      .... 
8  "    9       "      
9  "  10       "      .... 
10  "  11       "      .... 
11  "  12       "      .... 

15  "  16      "     
16  "  17      "     

17  "  18      "     

18  "  19      "     

19  "  20      " 

20  "  21      " 
21  "  22      "     . 

22  "  23      "     
23  "  24      "     
24  "  25      "     
Over  25      "     

95,306 

68 


AMERICAN  ACCIDENT  TABLE.  69 

Permanent    Partial    Disability    3,855 

Dismemberment  or  Loss  of  Use   2,753 

Arm    62 

Hand    88 

Thumb    98 

One  phalange  of  thumb   154 

Index  finger    306 

One  phalange  index  finger   265 

Second  finger   : 150 

One  phalange  second  finger 175 

Third  finger 106 

One  phalange  third  finger  91 

Fourth  finger    121 

One  phalange  fourth  finger 66 

Thumb  or  finger  and  loss  of  or  injury  to  other  fingers.  542 

Leg 64 

Foot, 44 

Great  toe  34 

One  phalange  great  toe  15 

One  toe  other  than  great  toe  22 

One  phalange  of  toe,  not  great  toe 13 

One  toe  and  loss  of  or  injury  to  other  toes 36 

Hearing,  one  ear  5 

Hearing,  both  ears   1 

Eye  295 

Disfigurement 51 

Other  Permanent  Partial 1,051 

In  these  cases  assume  average  degree  of  disability  equal  to  55  per  cent,  of 
average  disability  in  dismemberment  cases. 

Major  Permanent  Partial 942 

Minor  Permanent  Partial  2,913 

Permanent  Total. 

Average  age  at  time  of  accident  42  years. 

Distribution  of  Fatal  Cases. 

No  dependents   177 

Widow  alone  181 

Widow  and  children 258 

Widow  and  one  child  80 

Widow  and  two  children 69 

Widow  and  three  children  48 

Widow  and  four  children 29 

Widow  and  five  children  17 

Widow  and  six  or  more0  children  15 

0  Average  number  7. 


70  AMEKICAN  ACCIDENT  TABLE. 

Orphans   26, 

One  orphan  13 

Two  orphans 6 

Three   orphans   3 

Four  orphans 2 

Five  or  more6  orphans 2 

Widow  and  other  dependents 4 

Widow  and  one  parent 1 

Widow  and  children"  with  other  dependents 3 

Parents  and — or  brothers  or  sisters 127 

One  parent   67 

Two  parents  36 

One  brother  or  sister   7 

Two  brothers  or  sisters 2 

Three  or  mored  brothers  or  sisters 1 

One  parent  and  one  broaher  or  sister 5 

One  parent  and  two  brothers  or  sisters 3 

One  parent  and  3  or  more  brothers  or  sisters 2 

Two  parents  and  brothers  or  sisters6 4 

Other  dependents  f  3 

Total    776 

Average  ages. 

Widow  with  no  children   47  years. 

Widow  with  children 36  ' ' 

Children  8  " 

Brothers  and — or  sisters 11  tf 

Parents,  with  brothers  or  sisters  50  " 

Parents,  all  other  cases 61  ' ' 

*  Average  number  6. 
c  Average  number  2. 
d  Average  number  4. 
«  Average  number  3. 
f  Average  number  3. 


APPENDIX   XIII. 
CALCULATION  OF  PROJECTION  FACTOR  FOE  NEW  YORK. 

The  General  Eating  Committee  first  selected  pure  premiums 
upon  the  level  of  1917  year  of  issue  experience  in  the  state  of  New 
York.  To  the  Actuarial  Committee  was  then  referred  the  problem 
of  developing  factors  for  projecting  these  pure  premiums  to  appro- 
priate pure  premiums  which  would  reflect  present  day  conditions. 
The  Actuarial  Committee  realized  that,  at  this  stage  of  the  work, 
personal  judgment  would  have  to  enter  and  believed  that  it  should 
develop  a  dependable  statistical  basis,  which  could  be  used  in  the 
projection  process,  in  order  to  limit  the  extent  to  which  the  use  of 
personal  judgment  would  be  needed. 

The  problem  required  the  development  of  some  practical  method 
for  passing  from  state  pure  premiums  based  upon  1917  experience 
to  those  representing  the  loss  expectation  of  1920.  Obviously, 
actual  experience  for  policy  year  1919  was  not  yet  available.  After 
experimenting  with  various  methods,  the  Committee  developed  a 
method  of  projecting  the  probable  ultimate  loss  ratio  for  the  year 
of  issue  1919  by  making  use  of  actual  experience  data.  The  Ac- 
tuarial Committee  then  proposed  and  the  General  Eating  Committee 
approved  the  following  procedure : 

1.  The  calculation  of  the  loss  ratio  for  the  year  of  issue  1919. 

2.  The  determination  of  a  loss  ratio  for  the  experience  of  the  1917 

year  of  issue,  using  for  this  purpose 

(a)  the  combined  payrolls  reported  in  the  experience  for 

1917; 
(&)  the  manual  rates  in  effect  January  1,  1920; 

(c)  correction  for  the  average  effect  of  schedule  and  ex- 

perience rating; 

(d)  the  actual  losses  reported  in  the  experience  for  year 

of  issue   1917. 

3.  A  comparison  of  the  two  loss  ratios  developed  from  the  fore- 

going .procedure.     This  is  the  equivalent  of  a  comparison  of 
average  pure  premiums  and  measures  the  extent  to  which  the 
1917  pure  premiums  require  modification  in  order  to  serve  as 
a  proper  basis  for  rate  making  at  the  present  time. 
The  innovation  in  this  proposal  is  not  the  comparison  of  loss 
ratios,  so  much  as  in  the  determination  of  the  loss  ratio  for  policy 
year  1919,  which  is  still  an  open  year  of  account.    This  was  made 
possible  by  a  special  study  of  experience  figures,  which  indicated  a 
remarkably  stable  relationship  between  paid  losses  observed  at  De- 
cember 31  of  the  year  of  issue  and  ultimate  incurred  losses  of  the 
same  year.     (See  Exhibit  B.) 

71 


72 


CALCULATION  OF  PROJECTION  FACTOR  FOR  NEW  YORK. 


In  order  to  obtain  the  ultimate  earned  premiums  on  the  19 1£ 
year  of  issue,  similar  calculation  is  necessary.  The  Actuarial  Com- 
mittee found  that,  while  the  relationship  between  written  and  ulti- 
mate earned  premiums  is  not  so  stable  as  that  of  paid  to  incurred 
losses,  nevertheless,  with  a  restricted  exercise  of  personal  judgment, 
premium  factors  can  be  developed  which  make  possible  the  determi- 
nation of  ultimate  earned  premiums.  Thus,  the  information  re- 
quired for  estimating  the  policy  year  1919  loss  ratio  becomes  avail- 
able. 

There  are  presented  herewith  the  following  exhibits: 
Exhibit  A. — Comparative  study  of  development  of  New  York  pre- 
miums subsequent  to  the  close  of  the  calendar  year  in  which 
policies  were  issued. 
Exhibit  B. — Study  of  ratio  of  losses  paid  to  ultimate  incurred  losses 

of  the  same  year  of  issue. 

Exhibit  C. — Study   of   development  factors   on   the  country-wide 
business  .  .  .  taken  from  returns  in  Schedule  P  of  annual 
statement. 
Exhibit  D. — Summary  of  calculations. 


EXHIBIT  "A" — COMPARATIVE  STUDY  OP  DEVELOPMENTS  OF  NET  PREMIUMS 

WRITTEN  AFTER  THE  CLOSE  OF  CALENDAR  YEAR  IN  WHICH 

POLICIES  WERE  ISSUED. 

Compensation  Premium  Data. 


Name  of  Company. 

Year  of  Issue  1916. 

Premiums 
Written  to 
12/31/16. 

Premiums 
Earned  to 
12/31/17. 

Ratio 
(2)  -5-  (1). 

Premiums 
Earned  to 
12/31/19. 

Ratio 
(4)  -f-  (1). 

(1) 

(2) 

(3) 

(4) 

(5) 

Aetna  

852,405 
797,750 
485,483 
365,262 
212,821 
322,153 
295,337 
286,631 
244,981 
2,115,758 

1,463,374 
1,678,810 
645,223 
634,609 
291,226 
560,569 
481,458 
587,259 
378,247 
3,634,729 

1.717 

2.104 
1.329 
1.737 
1.368 
1.740 
1.630 
2.049 
1.544 
1.718 

1,536,921 
1,686,996 
701,686 
636,142 
289,870 
562,274 
486,756 
622,949 
380,920 
3,972,853 

1.803 
2.115 
.445 
.742 
.362 
.745 
.648 
2.173 
1.554 
1.878 

Employers  

Fid.  &  Cas.  Co.  ... 
Globe   . 

Hartford   .      ... 

London  

Maryland  

Ocean 

Royal 

Travelers  
U.  S.  Cas.  Co  

Total  Stock 
Companies  
Utica  Mut  
Am.  Mutual  

5,978,581 
270,360 

10,355,504 
337,364 

1.732 
1.248 

10,877,367 
337,274 

1.819 
1.247 

Grand  Total  

6,248,941 

10,692,868 

1.711 

11,214,641 

1.795 

CALCULATION    OF   PROJECTION    FACTOR   FOR   NEW   YORK.         73 


Name  of  Company. 


Year  of  Issue  1917. 


Premiums 
Written  to 
12/31/17. 


(1) 


Premiums 
Earned  to 
12/31/18. 


(2) 


Ratio 
(2)  -J-  (1). 


(3) 


Premiums 
Earned  to 
12/31/19. 


(4) 


Ratio 
(4)  -^  (1). 


(5) 


Aetna , 

Employers 

Fid.  &  Cas.  Co. 

Globe 

Hartford 

London 

Maryland .  .  .  .  , 

Ocean 

Royal 

Travelers 

U.  S.  Cas.  Co.. 


1,128,320 
1,008,169 
776,035 
392,264 
181,727 
495,155 
537,667 
411,765 
283,529 
3,538,872 
245,540 


1,967,715 

2,007,661 

1,078,145 

616,635 

303,316 

890,273 

1,083,804 

775,705 

515,002 

6,594,411 

342,847 


1.774 
1.991 
1.389 
1.572 
1.669 
1.798 
2.016 
1.884 
1.816 
1.863 
1.396 


2,001,726 

2,205,491 

1,131,620 

619,545 

314,945 

886,803 

1,139,000 

797,923 

538,038 

6,501,924 

346,060 


1.774 
2.188 
1.458 
1.579 
1.733 
1.791 
2.118 
1.938 
1.898 
1.837 
1.409 


Total  Stock 
Companies.. 

Utica  Mut 

Am.  Mutual.  . 


8,999,043 
375,161 
622,735 


16,175,514 

679,241 

1,097,662 


1.797 
1.811 
1.763 


16,483,075 

718,290 

1,082,038 


1.832 
1.915 
1.738 


Grand  Total 


9,996,939 


17,952,417 


1.796 


18,283,403 


1.829 


Name  of  Company. 


Year  of  Issue  1918-1919. 


Premiums 
Written  to 
12/31/18. 


(1) 


Premiums 

Earned  to 

8/31/19. 


(2) 


Ratio 

(2)  +  (1). 


(3) 


Premiums  to 
12/31/19. 


Aetna 

Employers.  .  .  . 
Fid.  &  Cas.  Co. 

Globe 

Hartford 

London 

Maryland 

Ocean 

Royal 

Travelers 

U.S.  Cas.  Co.. 


1,216,918 
1,697,325 
800,994 
545,725 
172,965 
708,603 
889,258 
561,001 
383,737 
3,835,248 
319,001 


2,386,450 

2,604,907 

1,118,719 

964,329 

285,381 

1,171,773 

1,393,578 

938,067 

721,859 

6,031,794 

382,542 


.961 

.535 

.397 

.767 

.650 

.654 

.567 

.672 

1.881 

1.573 

1.199 


1,211,613 
1,667,154 
817,500 
674,541 
225,961 
718,274 
897,609 
551,336 
467,932 
3,245,551 
286,562 


Total  Stock  Companies 

Utica  Mut 

Am.  Mutual . . 


11,130,775 
742,311 
901,948 


17,999,399 

904,946 

1,511,197 


1.617 
1.219 
1.675 


10,764,033 

978,769 

1,147,468 


Grand  Total. 


12,775,034 


20,415,542 


1.598 


12,890,270 


'16  Issues — Increase   '19  reporting  over  '17 — 105  per  cent. 
'17  Issues — Increase  '19  reporting  over  '18 — 102  per  cent. 
Average,  103.5  per  cent. 


74    CALCULATION  OF  PROJECTION  FACTOR  FOR  NEW  YORK. 

EXHIBIT  "B" — STUDY  OF  RATIO  OF  LOSSES  PAID*  DURING  CALENDAR  YEAB 

IN  WHICH  POLICIES  WERE  ISSUED  TO  ULTIMATE  INCURRED  LOSSES 

OF  THE  SAME  YEAR  OF  ISSUE. 

Compensation  Loss  Data. 


Name  of  Company. 

Year  of  Issue  1916. 

Year  of  Issue  19  17. 

Paid  to 
12/31/16. 

Incurred 
as  of 
12/31/19. 

Ratio 
(1)  -  (2). 

Paid  to 
12/31/17. 

Incurred 
as  of 
12/31/19. 

Ratio 
(1)  -*-  (2). 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

Aetna 

158,625 

147,535 
72,700 
53,388 
19,851 
61,947 
53,755 
50,989 
38,130 
383,074 
26,996 

1,021,990 
1,223,121 
484,005 
414,215 
226,021 
452,142 
349,557 
352,090 
199,321 
2,803,029 
151,893 

.155 
.121 
.150 
.129 
.088 
.137 
.154 
.145 
.191 
.137 
.178 

159,283 
147,802 
87,491 
46,867 
22,693 
61,705 
81,478 
66,710 
28,369 
447,356 
32,215 

1,032,092 
1,269,928 
617,563 
299,070 
155,125 
511,801 
657,336 
372,961 
203,004 
3,212,870 
133,084 

.154 
.116 
.142 
.157 
.146 
.121 
.124 
.179 
.140 
.139 
.242 

Employers  .... 
F.  &C  
Globe  

Hartford  

London  
Maryland  
Ocean  

Royal  

Travelers  

U.  S.  Gas. 

Total  Stock 
Companies.  . 
UticaMut  
Am.  Mutual  .  . 

1,066,990 
37,624 

7,677,390 
264,334 

.139 
.142 

1,181,969 
33,148 
94,599 

8,464,834 
309,527 
455,013 

.140 
.107 
.213 

Grand  Total.  . 

1,104,614 

7,941,724 

.139 

1,309,716 

9,219,374 

.142 

Excluding  Prohibited  Eisks. 


EXHIBIT  "C" — STUDY  OF  DEVELOPMENT  FACTORS   ON  THE  COUNTRYWIDE 

BUSINESS  FOR  NINE  EEPRESENTATIVE  STOCK  COMPANIES  AND  Two 

MUTUAL  COMPANIES  TAKEN  FROM  KETURNS  IN  SCHEDULE 

P  OF  ANNUAL  STATEMENT. 


Year  of  Issue. 

1914  .  . 

1915  .. 

1916  .. 

1917  .  . 

1918  . 


Ratio  of  Ultimate  Premiums 

to  Net  Premiums  Written 

as  of  December  31st  of 

the  Issue  Year. 

.    1.29 


1.53 
1.68 
1.73 
1.61 


Ratio  of  Losses  Paid^Dur- 
ing  Calendar  Year  of  Is- 
sue to  Ultimate  Losses 
Incurred. 

.178 
.162 
.194 
.181 
.177 


CALCULATION  OF  PROJECTION  FACTOR  FOR  NEW  YORK.    76 

EXHIBIT  "D" — SUMMARY  OF  CALCULATIONS. 

Paid  Losses  to  12/31/19  on  1919  Issues $  1,864,974 

Projected  Losses  Incurred  on  1919  Issues 13,514,305 

(1,864,974  -*-  .138) 

1919  Issues  Net  Premiums  Written  as  of  12/31/19 12,890,270 

Estimated  Final  Premiums  1919  Issues  21,320,506 

(12,890,270  X  1.035  X  1.598) 

Estimated  Loss  Ratio  1919  Issues 63.4% 

Projected  (1919  Manual  Eate  Basis)  premiums  of  1917  payrolls 
on   representative  classifications,  after  allowing  for   schedule 

and  experience  modification 21,066,536 

Actual  Losses  same  payrolls  and  classifications 11,827,060 

Corresponding  Loss  Ratio   56.1% 

63  4 
Projection  Factor    56"l==  ltl3 


APPENDIX   XIV. 
MEEIT  EATING. 

The  subject  of  merit  rating  has  not  been  treated  in  the  body  of 
the  present  report  since  the  1920  revision  was  directed  particularly 
to  the  subject  of  manual  rates.  But  merit  rating  is  an  integral 
part  of  the  compensation  rating  system  and  some  comprehension 
of  its  nature  is  essential  to  an  appreciation  of  the  function  of 
manual  rates. 

The  manual  rate  for  a  classification  represents  the  average  rate 
which  must  be  collected  from  employers  whose  enterprises  fall 
within  the  classification,  in  order  to  meet  the  compensation  costs 
for  which  such  enterprises  are  responsible.  It  is  obvious  that  the 
compensation  hazard  is  not  the  same  for  all  plants  engaged  in  the 
same  industry  and  that  it  is  therefore  unfair  for  all  to  pay  the  same 
rate.  Merit  rating  has  been  developed  to  measure  the  extent  to 
which  each  plant  varies  from  the  average  and  to  express  this  vari- 
ation in  rates  higher  or  lower  than  manual  for  those  plants  which 
are,  respectively,  poorer  or  better  than  the  average.  Indications  of 
the  variation  of  a  plant  from  the  average  are  found  in  the  physical 
condition  of  the  plant  and  in-,  the  rpcord  of  compensation  losses  paid 
to  its  employees.  ,  To  measure  these  indications  two  types  of  merit 
rating  have  been  developed;  schedule  rating  and  experience  rating. 

In  rating  a  ri^k  ilnder  tl-e  scaedula  rating  plan  an  inspection  is 
made  of  the  physical  features,  deduction  being  made  from  the 
manual  rate  for  conditions  which,  from  the  loss  producing  point  of 
view,  are  better  than  the  average  for  the  industry,  and  additions 
being  made  for  those  which  are  poorer.  The  net  result  of  these 
additions  and  deductions  constitutes  a  schedule  rate.  Under  the 
experience  rating  plan  the  actual  losses  of  the  plant  are  compared 
with  normal  losses  for  the  industry,  a  charge  being  made  for  ab- 
normally large  losses  and  a  credit  given  for  unusually  small  losses. 

Thus  a  risk  which  qualifies  for  both  schedule  and  experience  rat- 
ing is  charged  a  rate  which  reflects  the  hazard  of  the  industry  to 
which  it  is  devoted  and  also  its  individual  hazard  as  disclosed  by 
its  physical  characteristics  and  by  its  loss  experience. 


76 


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